OPEC nations’ revenue slumps to five-year low after crude oil price crash

The Organisation of Petroleum Exporting Countries (OPEC) has reported a five-year low in terms of annual revenue.

The 12 member countries slipped below $1 trillion last year for the first time since 2010, showing the impact that the crude oil price slump has had on these wealthy economies.

The countries, which include the likes of Saudi Arabia, Qatar and United Arab Emirates earned $993.3 billion in 2014, down 11 percent on the previous year.

The figures, which appeared in the organisation’s annual report, also show that the combined current account balance dropped by 35 percent to $273.6 billion as the drop in exports was accompanied by an increase in imports.

The Saudi Arabia-led strategy of defending market share instead of prices now appears to be hurting some of these countries which depend on petroleum exports for the health of their economy.

OPEC nations agreed on June 5 to keep a production limit of 30 million barrels a day, a level they have exceeded every month since June last year, according to data compiled by Bloomberg.

“Given the weakness in the first half of the year, another sub-one-trillion-dollar revenue year remains on the table,” Hamza Khan, an Amsterdam-based senior commodity strategist at ING Bank NV, said by e-mail Wednesday.

Bloomberg reports that he also said the impact on the government finances of some OPEC members could be mitigated by increased production and foreign direct investment.

What does this mean for gas buyers?

Although it may not be immediately obvious, the price for gas is heavily connected to the price of oil. This means that any news coming from the largest oil producing nations should be on the radar for volume gas-buyers.

So what do falling OPEC revenues tell us about the future price of gas? If only the answer was black and white.

Unfortunately, OPEC nations are a fairly unpredictable bunch and many of their negotiations are carried out behind closed doors. This means that any OPEC speculation is precisely that, speculation.

Earlier in June, the members reaffirmed their commitment to keep oil production at a quota of 30m barrels per day in a bid to squash competition from American shale oil producers.

“They want to keep the price low enough to keep US shale-oil producers from producing,” said Charles Nedoss, senior market strategist at LaSalle Futures Group and indicators suggest that this strategy is working to a degree.

Mr Nedoss continues: “they’re dealing with something they’ve never dealt with before, the fact that someone else can step-up production.”

While OPEC market share has increased compared to last year and while American production appears to be slowing, some inside OPEC will want to continue with the artificially low prices.

However, according to data compiled by Bloomberg, “almost all the group’s members aren’t earning enough from current oil prices to balance their budgets”.

There is no doubt that some inside of OPEC are beginning to balk at the falling revenues. Particularly among the economies which depend heavily on oil exports.

Venezuela, who was initially one of the country’s most in favour of curbing production, appears to have changed its mind. Their Oil Minister has suggested that the oil market will stabilise before the end of the year and the President recently announced plans for more than $14 billion in domestic oil projects.

If the blowing winds can be trusted then we might expect oil and gas prices to rise at some point in the not-too-distant future. Watch this space.

For more energy market analysis, speak to a member of the Business Gas.com energy team. Call: 0800 157 7157