With the steep fall in crude oil prices this week, Nigeria and other members of the Organisation of Petroleum Exporting Countries are bleeding over $500m a day in lost revenue, according to Reuters’ calculations. Saudi Arabia launched an oil price war last Saturday following the failure of OPEC and its 10 allies, led by Russia, to broker a deal on Friday.
For the most part, oil is a top income source for OPEC members and such a dramatic fall in prices will put strain on their economies, some of which are already on the brink, according to Reuters. Brent crude, the international benchmark, was down by as much as 31 per cent to $31.02 on Monday, their lowest since mid-February 2016. At that low, prices were down nearly $20 a barrel from a high before the meeting of OPEC and its allies on March 6. This means that in total, and based on their average February production, OPEC members lost more than $500m in revenue, according to Reuters’ calculations.
The losses are a lot more pronounced when compared with the high of $71.75 a barrel that Brent hit in January. OPEC has been pushing for expanding the existing cuts with its allies, known as OPEC+, by an additional 1.5 million barrels per day to over 3.0 million bpd until the end of the year. Russia turned the proposal down, causing the collapse of the alliance and the start of a price war over market share. Nigeria and Algeria on Monday said the breakdown of the deal would be painful for producers.
For some nations, including one of the group’s richest members, Saudi Arabia, fiscal budget break-even oil prices were already much higher than the oil price before the most recent collapse. “A $10 a barrel decline in oil prices lowers fiscal revenues by 2-4 per cent of GDP, depending on the country, and fiscal break-even prices are well above current levels for all Gulf Cooperation Council sovereigns,” Jan Friedrich, Head of Middle East and Africa Sovereign Ratings at Fitch Ratings, said.
“However, at least the higher-rated sovereigns, particularly Kuwait, Qatar and Abu Dhabi, have ample buffers, mainly in the form of sovereign wealth funds,” he added. According to Fitch, the sharp drop in oil prices, if sustained, is likely to pull down sovereign ratings of exporter countries with weaker finances, especially those with the added pressure of pegged exchange rates.
Friederich told Reuters that with the oil prices likely to stay low for some time, countries from Saudi Arabia, Iraq and Oman to Nigeria and Angola were all in focus. “Countries that are in a somewhat vulnerable external position and have a fixed exchange rate are of course particularly vulnerable,” Friederich said. On individual countries, he said Saudi Arabia’s financial reserves and its sovereign wealth fund provided a buffer but that there was not “infinite leeway” in the country’s A (stable) rating for the buffers to disappear.