Good year OPEC can hide great fragility Economy | markets



The last assessment by the United States of the amount of money the OPEC receives from oil exports confirmed one thing: the reduction of stocks worked.

In the annual income list of the Organization of Oil-exporting Countries (OPEC), published on Tuesday, the Energy Information Administration (EIA) estimates that the export earnings of the OPEC originated in the US. $ 567,000 million in 2017, an increase of 26% in real terms.

The increase took place despite the slight decrease in the average oil production of the group compared to 2016. That is the magic of higher prices and collective supply restrictions.

However, the figures also show how great the OPEC gap is now. Because the 26% growth is of course fantastic, but how well depends on where you start:

The scale of the OPEC challenge becomes even clearer when considering population growth: the EIA projection of an income of just over US $ 1,400 per person in the OPEC countries this year is comparable to what it was in 2004 ( slightly more than US $ 1250 in real terms).

At that time, the raw Brent oil averaged about US $ 50 per barrel in real terms against a forecast of nearly US $ 72 this year. Of course you have to share the loot between 140 million more people, an increase of 38%.

Moreover, the comparison becomes more difficult: according to the World Bank, the OPEC population will increase by another 129 million by 2030.

There are big differences among the numbers. The oil export turnover of Nigeria per capita of the past year was only US $ 179 and with that the lowest in the group and only 1.5 percent that of Qatar, which led to almost US $ 12,000 per person. Moreover, in absolute terms Nigeria accounts for more than half of the expected increase in the OPEC population in 2030.

Let's not forget Venezuela, where per capita income in recent years collapsed through a combination of lower prices and lower production, with the latter making a major contribution to the supply reductions that helped the group.

The part of the income for those living in Saudi Arabia, the largest exporter of the OPEC, against those who are unfortunate enough to be in Venezuela, tell that story. And given the current production trends, it is likely that this share will increase this year:

If you are wondering why countries like Saudi Arabia are trying to diversify their economies and are no longer dependent on oil revenues – and fast – these tables help a lot to explain.

The per capita income of Saudi Arabia's oil exports of nearly $ 5,100 last year was less than half the level five years earlier. And although this year is likely to be higher due to a combination of increases in output and prices, a return to exciting levels of more than US $ 10,000 per man, woman and child is unlikely unless there is a price increase.

As always, there are many possible scenarios that lead to increases, from everything from the Iranian conflict to the consequences of stricter regulations for marine fuels, but even today's prices have an impact on demand. Also remember that higher prices stimulate greater oil production in North America and other non-OPEC regions.

In a report that was also published on Tuesday, Bassam Fattouh and Andreas Economou from the Institute for Energy Studies in Oxford investigated the juggling act that Saudi Arabia wants to maintain this year.

They conclude that the de facto leader of OPEC is trying to manage the oil market now within a band of US $ 70 to US $ 80 a barrel, because it tries to get enough income without harming the demand (and also stay on the right of the White House before the midterm elections).

That is an extremely narrow channel to navigate in the face of so many opposing forces. The latter include the chronic challenges of competitive energy technologies, non-OPEC supply and initiatives to combat climate change.

But these are complicated by another great force: the own weaknesses of the OPEC. Countries such as Saudi Arabia are trying to achieve transitions, both on the energy market and in their own societies, and all with lower revenues from oil exports that support larger populations.

Future price increases may offer extraordinary profits, but they also cause structural damage to oil demand. The apparent victory of the past year must be framed in the context of this broader fragility.

By Liam Denning

This column does not necessarily correspond to the opinion of the editors or of Bloomberg LP and its owners.


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