This page has been archived and commenting is disabled.
How Much Longer Can OPEC Hold Out?
Submitted by Guarav Agnihotri via OilPrice.com,
OPEC has been the most talked about international organization among investors, analysts and international political lobbies in the last few months.
When OPEC speaks, the world listens in rapt attention as it accounts for nearly 40 % of the world’s total crude output. With its headquarters in Vienna, Austria, one of the mandates of 12- member OPEC is to "ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry." (Source: opec.org).
However, OPEC has been in the line of fire from the western world in light of its stance of not reducing the production levels of its member nations (excluding Iran). Most view this as a strategy to squeeze the American shale production and other non OPEC nations.
All is not well for OPEC
Simply put, the world has too much oil at the moment which has resulted in the reduction of price levels from approximately $100 to $50 a barrel, and OPEC (as well as US shale producers) has a major role to play in this supply glut. With the decline of average annual crude prices, OPEC earned around $730 billion in net oil export revenues in 2014 (Source: EIA), a big decline of 11% from its previous year. The EIA even predicts that OPEC’s net oil exports (excluding Iran) could fall to as low as $380 billion in 2015.
With the huge reduction in its revenues and growing discomfort among its members such as Venezuela, Libya and Nigeria over its current production levels, is OPEC really getting weaker?

Image Source: EIA
Iran Nuclear Deal: A warning sign for OPEC?
With announcement of a historic nuclear deal framework between Iran and six global powers: America, France, Britain, China, Russia and Germany on April2, 2015, there is a good possibility that Iranian crude oil exports will increase greatly after June 2015 when the final nuclear deal is signed. Iran is all set to pump close to 300 million barrels of crude into the market, thereby kick starting another potential decline in oil prices.
This might be one of the most crucial junctures for OPEC and it has to consider the possibility of reducing its current production quotas, mostly due to its internal issues of which the cartel has many.
Venezuela’s Woes
Containing some of the largest proven oil and gas reserves in the world, Venezuela is one of the founding members of OPEC. However, the country is reeling under a major economic recession since 2014 with an inflation rate of 68.5% (as on December 2014).
Cheap oil has created a huge financial crisis for Venezuela as its economy is heavily dependent on oil exports and oil revenues constitute about 95% of its total foreign exchange earnings. As per its state run oil company PDVSA, the country loses about $700 million a year with every $1 drop in the international oil price.

For a nation that is suffering from shortage of basic requirements such as food and toilet paper, any further reduction in oil prices would result in a total economic collapse. Therefore, it would be in Venezuela’s interests to reduce its production levels especially after the Iran nuclear deal.
Nigeria’s dilemma
Nigeria is Africa’s largest oil producer and among the top 5 global exporters of LNG. An OPEC member since 1971, Nigeria’s oil and gas sector represents about 75% of its total government revenues and 95% of its total export revenues. The African nation’s economy is heavily dependent on crude oil prices as its foreign exchange reserves (built as a result of net positive oil revenues) have reduced substantially over the past two years.

Much like Venezuela, Nigeria needs international crude prices to be in the range of $90- $100 a barrel which is not possible unless OPEC reduces its supply.
Iraq’s Issues
After Saudi Arabia, Iraq is the biggest crude oil producer in OPEC. It also has the fifth largest proven crude oil reserves in the world. With an increase in its government budget spending, the country requires a stable international oil price of $105 per barrel to achieve its break-even point. The current oil price levels are nowhere near this. Apart from this, issues such as the ongoing ISIS insurgency, western sanctions, heavy economic dependency on oil (more than 90%) and poor infrastructure have added to Iraq’s woes.
The OPEC ‘heavyweights’
Apart from being the largest exporter of the total petroleum liquids in the world, Saudi Arabia is also the main driving force behind the cartel’s stubborn supply policy. The Saudis, along with Kuwait and UAE have been defending the decision of not reducing the OPEC production levels in order to retain their global market share. It is interesting to note that even if the oil price remains at the current levels, Saudi Arabia, Kuwait and UAE would have enough cash reserves to remain in the game for several years.
In short, these OPEC heavyweights have little to worry about from the current low oil prices for the time being.
United we stand, divided we fall.
In December 2014, the Energy Information Administration warned OPEC to reduce their production levels. According to the EIA, these cuts would be helpful for OPEC members such as Venezuela, Nigeria, Iraq and Iran as reduced OPEC supply and the corresponding increase in oil price would safeguard their uncertain future economic growth.
Leaving the heavyweights to one side; it is quite evident that OPEC, as a group, has become somewhat weakened. Apart from its falling export revenues and the growth of non OPEC producers, especially US shale production, OPEC now stands divided into two factions. One faction that is being led by Saudi Arabia wants to maintain and even increase its production levels while the other faction consisting of Venezuela, Nigeria, Iran, Iraq and Algeria requires just the opposite for safeguarding their national interests. In fact, the latter requires crude prices to be as high as $100 per barrel in order to balance their falling budgets (Source: IMF).
Last year, Saudi Arabia’s oil minister Ali Al Naimi said “It is not in the interest of OPEC producers to cut their productions, whatever the price is.”
A number of mitigating factors make this year’s June meeting of OPEC more interesting than ever.
- 11943 reads
- Printer-friendly version
- Send to friend
- advertisements -


eye canna hold it captin
der cock and balls day gonna blow
god willing by the summer the jewish house of saud will be a little hotter and aramco will be pumping sea water to fight the fires.
Longer than Venezuela?
Regards,
Cooter
Watch it Tony or you'll be sent to join Francis Sawyer again......
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
Not for the long term. Saudi Arabia has to placate its Free Shit Army.
Saudi Arabia prints money for their rich assholes too?
"Now the king told the boogie men
You have to let that raga drop"
~ The Clash (1982)
"The Western World" being shorthand for US oligarchs and their Eurovassals. Don't include a billion people in your little schemes to make yourselves sound bigger.
Ummm....Actually that would be 6 billion.
530 million or so in the EU.
330 million in the US.
About another 100 million in Western-aligned former colonies.
About 1 billion total.
There are 7 billion on the planet.
But, of course, those 1 billion invented just about everything that makes the modern world different from the world of 1000 years ago, and they have the wealth that you'd expect from that.
So, those 1billion people probably are more wealthy and powerful than the rest of the planet's population, combined.
For now...
HATE FACTS!
Free oil market bitchez
its a race to see who can hold out the longest running deficits...govt or frackers? costs outweigh revenues on each barrel put out there...who can last the longest? then -pop- bankruptcy after bankruptcy; then pop again, goes the price to the moon
Clearly orchestrated. Hang on tight; approaching rapid boil. I've liquidated my redundant machinery and sold my house. It's time.
What a sick fucking view of the world when low prices are considered a bad thing. And the fact that the west has sanctions against Iran does not mean that Iranian oil isn't making it into the oil market through other channels.
If you're the one procuring it, transporting it, and selling it it's a bad thing.
Do you need an explanation?
You know what consolidation and efficiencies are right?
The Saud's can make money anything over $10 bucks a barrel. They want market share and will do what it takes to have it. Screw OPEC it's every oil producer for themselves now.
Gotta love these articles citing the IMF for production costs. Ha!
When you see all the big boys are ready to gun it out for market share you know it's on like konky dong.
"The Saud's can make money anything over $10 bucks a barrel."
You sure about that?
No mention of Russian oil dependence......
Sorry for the long post, but without the background, nothing makes sense.
Connect the dots and draw your own conclusions.
Remember: timing is everything!
During the Yom Kippur War (October 1973 War ) the OPEC used its authority to threaten the United States to stop helping Israel in the war. President Nixon however did not waver and sent more forces to aid Israel in the war. This angered the King of Saudi Arabia (King Faisal) which proclaimed that a ban on oil shipments to the United States is in effect. The other countries (Arab Nations) followed suit and the ban was only lifted on March 1974, when the Israeli withdrew from the captured Syrian territory.
We went off the gold standard in 1972 and the petro-dollar currency was established.
The Biggest Financial Con in History
The year was 1944 … and all the 44 Allied nations gathered in Bretton Woods, New Hampshire.
Their mission was to create a set of agreements to manage international trade after the war.
Their brainchild, The Bretton Woods agreement, established the dollar as the world’s reserve currency.
…
This international game-changer gave the United States a distinct economic advantage, but with one caveat … every dollar the Fed printed would be redeemable for gold at a standard rate of $35/oz.
This was put in place to ensure the Fed didn’t print dollars with reckless abandon.
But of course, the Fed printed more \dollars than it had in gold to exchange, and with massive expenditures on the Vietnam War, the rest of the world became suspicious of America’s ability to pay.
So nations began to demand the gold they were promised.
Then in 1971, President Nixon recognized he would not be able to meet the obligations and closed the gold window. It was the first American default and it set off a rapid decline in the value of the dollar.
Oil prices soared. Inflation soared to 15% and higher. At the same time, GDP fell 3.2% and unemployment hit 9%. P/E ratios crashed down from 16 to 8 and stocks had the worst 15 year period in history … even worse than the Great Depression.
The government imposed wage and price controls which caused gas shortages around the country.
But in 1973, then-Secretary of State Henry Kissinger hatched a brilliant plan.
America had great military might and Saudi Arabia needed protection for its vast oil empire.
So, in a stroke of genius, Kissinger exchanged America’s military might for Saudi Arabia’s promise to sell oil exclusively in U.S. dollars.
Meaning, any country that wanted to purchase oil from OPEC was forced to use U.S. dollars.
So anytime another country wanted to buy oil from the Middle East, they had to first convert their currency into U.S. dollars.
And since oil is required in modern economies — and the Saudis are a main player in the oil trade — this put the U.S. in a unique situation.
Countries around the world would have to export goods and services to get the dollars they’d need to buy oil. America on the other hand could simply “print” the dollars it needed to buy oil.
Which means the U.S. could run massive trade deficits because we exported the most valuable commodity in the world … the U.S. dollar.
Up until the early 1970s America was the world’s largest creditor.
But by the early 1980s we had begun to run our first trade deficits.
And since the 1990s our trade deficits have grown to trillions of dollars.
In order to get the dollars they needed to buy oil, countries flooded the U.S. market with cheap cars, cheap T.V.s, cheap clothes … and we simply flooded the world with cheap currency in return.
But here’s the cherry on top …
The OPEC countries were required to invest their profits in US treasuries, feeding the demand for government debt … allowing the government to borrow with reckless abandon … and creating the greatest bond bull market the world has ever seen. But it wasn’t just the government that borrowed.
Consumers borrowed $14 trillion, add in $11 trillion in corporate debt, $17 trillion in financial debt and up to $90 trillion in unfunded liabilities like Social Security and Medicare — it all adds up to $140 trillion in total debt … that’s around 10 times greater than our whole domestic production. It’s truly staggering.
And the whole house of cards is maintained by this simple agreement made in 1973.
Do you see why it’s so important the U.S. maintains the petrodollar?
Do you see why we’re willing to go to war with anyone who challenges the petrodollar?
And do you see why this is the biggest opportunity that China has to end the golden age of America and usher in an age of Chinese dominance?
2008 gave us a prime example of what happens when the national credit card is shredded.
From the late 1990s until early 2007, housing prices grew three times faster than income as the Fed pushed down rates to 1% and banks gave mortgages to anyone with a pulse. But the fact is, this rapid rise in house prices was unsustainable. And eventually the market ran out of credit-worthy buyers.
And at this point the housing bubble simply popped.
And here’s the even scarier part — even though growth only decreased 2% over the next few months, the entire economy almost collapsed.
The Government spent trillions on bailouts and stimulus to get the economy moving again because they understood an important truth…
The same dynamic is happening right now, but on a much, much larger scale, in the bond markets.
Simply put, China is plotting to take away our biggest source for our seemingly inexhaustible demand for Treasuries … And right now China has us right where they want us.
Because while Americans are stuck in the past … burdened by the promises and entitlements made years ago … China is preparing for the future
And their goal is an all out assault on American supremacy and the petrodollar.
Great post. Timing is everything.
Unless you've done "The China" then timing isn't as important.
Agree on everything but the question remains: Why is the world still buying dollars in such vast quantities when its value is a chimera?
Is this the same China that owns 12% of the FED system and is has been connected at the hip with "the Boys" since 1973?
http://www.federalreserve.gov/SECRS/2008/March/20080303/ICP-2008108/ICP-...
I think it's time to tell oilprice.com to put a sock in it.
If you take out the last ten years of Central bank inspired mass speculation, where would oil be trading? Looks like it would be trading around $40.
Is it our fault that oil producing nations got greedy and based future handouts on $80+ barrels of oil when they knew the world economy could absorb the cost of such oil. The Goldman Douche oil premium needs to be erased once and for all.
Ten years ago Shell, BP, Exxon, etc never thought oil would ever go above $60. That price was a frickin pipe dream and engineers that worked for the oil majors said it would be profitable to drill anywhere in the world at that price. Then fucking wall street ran the price up to $147 a barrel and all of a sudden we started hearing that the break even for oil was $75. We were deep water drilling at $20 a barrel.
Every single thing spouted in the media about every subject has been complete bullshit since the late 1990s. I mean there was always bullshit but after 1996 it all became mass bullshit with no compromise. You see anything linked to a government agency, most likely at least half the data is completely made up.
Wait till the Deal is signed (in June), and the Sanctions start coming off.
I'm waiting to see what currency will be used to sell Iranian oil.
If it's not PetroDollars, the Saudis will shit their pants (or whatever they wear under those robes/dresses)... and the Fed and its QE+ZIRP* beneficiaries even more so.
* aka "Money for Nothing, and Checks for Free". That ain't workin', that's the way you do it...
I'd say petrodollars are part of the deal. And a Rothschilde central bank.
deleted duplicate
This must have been posted by the Tyler who DOESN'T think that this is all part of the Evil US's plan...
Wha?
You mean there REALLY IS a price war going on? You mean, with, like, REAL participants...not just Russia against the US...masquerading as everyone else????
FYI... There are many powers in the world, and always have been. The Post-War order was built on aligned interests, mainly in not being ruled by a military-force-based autocrat...which now diverge.
Instead, the Powers each seek to carve out their individual autocratically ruled territories, while the bankers who profitted from all of it prepare to be embedded and essential to the winner...whomever it may be.
(probably China...unless you are a student of history and note that the obvious successor has never been the successor before)
The Shale owners will always make money. There are crews being asked to take a pay cut to not be let go. If 50 becomes the new normal wages will come down and oil workers will be the new minimum wage walmarters of the world.
OPEC is not weakened, it is DEAD.
No sympathy from me for almost all of the OPEC countries, SA and Nigeria in particular. I saw a guy blown onto the side of the road by a car in Lagos and nobdy went to help him. Surreal.
FWIW my belief is that the US overtures to Iran are an attempt to drive oil prices down, which in turn will put further pressure on Russia which, maybe, will lead to WW III. At which point the banksters flee with their loot and the world resets.
Saudi Arabia and the other Gulf monarchies are acting in contradiction to the purpose of OPEC and the interests of its members. They are pursuing purely political objectives in punishing Iran and Russia, while also destroying the governmental budgets of all its members. In any rational organization this would be grounds for expulsion. Ten years from now, perhaps, we will look back at 2015 as the year in which the Saudis, in their haste to score political points, shot themselves in the foot by prematurely depleting their petroleum reserves.
That is what this is all about; hurting Russia and Iran.
This is a really stupid article with a stupid title How Long Can OPEC survive?
1. Saudi is just trying to restore order to a batshit insane market where every producer relies on Saudi to reduce production to keep everyone with higher costs of production in business. Consider the following: Because of its massive volumes, Saudi has a cost of production of under $15/bbl. This blows away any shale oil play, North Sea development or Russian field, which generally have costs of production and transportation between $40 and $70/bbl. IN AN ORDERLY MARKET FOR A COMMODITY, THE LOWEST COST PRODUCER ALWAYS WINS AS IT CAN PRODUCE AS MUCH IT WANTS, UP TO TOTAL MARKET DEMAND, AND MAKE MONEY BECAUSE IT CAN BEAT EVERYONE ELSE'S COST STRUCTURE AND PUT THEM OUT OF BUSINESS. Why would Saudi be increasing production (now up to a record 10.3 million barrels daily, with as much as another 1 milliion barrels daily coming onstream) if they weren't making money on each barrel? THE LOWEST COST PRODUCERS SHOULD NEVER GIVE UP PRODUCTION VOLUMES TO ENABLE A MUCH HIGHER COST PRODUCER TO STAY IN BUSINESS. THE LOWEST COST PRODUCER IS NOT THE SWING PRODUCER, THAT JOB BELONGS TO THE HIGHEST COST PRODUCER. This is the change that Saudi is making by its refusal to cut production.
2. Other OPEC members are in a similar situation: Kuwait, Qattar, Abu Dhabi, Libya, and Iraq have similar situations with lower cost structures. The problem with Libya and Iraq are the political issues that are likely to lead to civil war. Nigeria might have low costs, but a disfunctional tax/royalty system. Saudi and Iran are virtually at war with each other, so Saudi will do nothing to help them in OPEC. No one in OPEC gives a shit about Veneuela, as their Obama-Picketty Communistic state created all their problems. IN SUMMARY, I DON'T ENVISION OPEC CHANGING THEIR POSITION AT ALL AT THE JUNE MEETING.
3 If the OPEC members that matter can comfortably make a profit on their oil at $50-$60/bbl, then the question should be How Long Can the High Cost Producers Survive?
Or perhaps the Family Saud's soothesayer whispered to them "This party's almost over. Grab as much as you can as fast as you can and be ready to scoot."