7.7 percent increase in OPEC revenues likely this year, US says
Regional, Economics, 5/6/1999

The U.S. Energy Information Administration (EIA) said that based on an April reference case it expects OPEC oil export revenues to increase by 7.7% in 1999 over their 1998 levels to $107.6 billion.

This comes as oil prices are recovering after a low period that began in late 1997 and lasted until earlier this year.

It said that oil export revenues in the first half of this year will likely see a decrease from their 1998 levels, while an increase of 23% over 1998 levels is expected for the second half of the year. It said the overall increases "could result in a dramatic improvement in OPEC finances and economic situations in general as the year progresses."

Although the EIA said that it expects a "real" increase in OPEC oil export revenues of only 5.6% this year due to decreased exports, it said that difficulties in OPEC member states caused by falling revenues may begin to ease this year.

The EIA said that Saudi Arabia accounts for about 28% of OPEC revenues, adding that the other top exporters in the organization are Venezuela, Iran and Iraq, which is expected to earn $9.4 billion for its 1999 exports and whose share of OPEC revenues is heading toward 9%.

The EIA estimates are based "in large measure" on adherence to the OPEC production agreement reached earlier this year.

The report said that despite the projected improvement, "for 1999 as a whole, it is expected that OPEC oil export revenues will remain near-historic lows, with a possible continuation of serious implications for OPEC balance of payments, budgets, and overall economic conditions."

The report cited an OPEC production increase, warm winters in the northern hemisphere, increased Iraqi oil exports, and the economic crisis in Southeast Asia as factors in the low levels of oil prices over the last year and a half.

The report said that hydrocarbon export revenues make up 987% of Algeria's total revenues from exports and 58% of its total fiscal revenues. Algeria pledged to cut production by 58,000 barrels per day (bpd) at OPEC's meetings in April.

Algeria's oil revenues in 1997 were worth $7.5 billion, but that fell by 35% to about $4.8 billion in 1998, the report said. The real GDP in the country grew by only 1% in 1998, falling short of expectations of 6% growth, and no growth is expected in 1999. However, the EIA report expected that Algeria's oil revenues would rebound this year to $5.1 billion, fulfilling budget expectations. It added that exports of natural gas could further help Algeria's economic situation.

The report estimated Iraq's oil production during January 1999 at 2.5 million bpd, up from about 550,000 bpd in 1996. The report emphasized that Iraq's ability to reach the level of revenues permitted under the UN oil-for-food program is "largely dependent" on its export production, as it cites increasing Iraqi production in the decline of prices. It said that 2.1 million bpd at a price of $14 per barrel would help Iraq meet its target of $5.26 billion over a six-month period.

The report added that if Iraqi export revenues meet a projected level of $9.4 billion, this would represent an increase of 51% over 1998 levels and 124% over 1997 levels. The annual ceiling for the oil-for-food program is set at $10.4 billion.

Kuwait, whose oil revenues account for 90% of the government's income and almost half the country's GDP, was hit hard by the low oil prices, the EIA report said. Projected revenues of $8.2 billion are down 35% from 1997 revenues, although they represent a 3% increase over 1998 levels. The 1999-2000 budget was based on a cost of $8 per barrel, which the report said now appears to have been "far too pessimistic." The report said that Kuwait has pledged to cut its production by a total of 369,000 barrels from its February 1998 production rate.

Libyan oil revenues in 1999 are expected to reach $6 billion, a 3% increase over 1998, but a 33% drop from 1997. However, export revenues in the second half of the year are expected to rise by 21% over those of the same period last year, the EIA said. The report noted that UN sanctions against Libya, which have now been suspended, "include a freeze on Libyan funds overseas, a ban on the sale of oil equipment for oil and gas export terminals and refineries." The sanctions have helped cause economic growth of less than 1% in 1996 and 1997 and a 1.5% decline in 1998. Libya pledged production cuts of 96,000 bpd in March and total cuts of 226,000 bpd from February 1998 production.

Although the economy of Qatar gets 70% of revenues from oil, natural gas is becoming more important and the country is trying to diversify its economy, the EIA report said. Its 1999 oil revenues are expected to reach $3.1 billion, up 7% from 1998. Debt acquired "as the country has invested in LNG, petrochemicals, refining, and electric power capacity" stands at about 30% of the GDP, the report said, adding that these investment projects should begin to come online in 2000. Qatari production cut pledges reached 107,000 bpd from February 1998 levels.

Saudi Arabia currently produces 7.5 million bpd of crude oil, the EIA report said, down from 8.75 million bpd in February 1998. Oil exports account for 90% of Saudi Arabia's revenues from exports, and more than half of Saudi oil sales go to Asia, increasing the impact of the Asian economic crisis.

1999 revenues are expected to make only a 1% increase to $30.1 billion, up from a 1998 level of 29.7 billion, but 38% lower than the 1997 level of $48.1 billion. Revenues from oil exports are expected to rise in the second half of 1999 by 14% over levels during the second half of 1998.

The report noted several ways in which Saudi Arabia can benefit from low oil prices: "With at least 250 billion barrels of proven oil reserves (and as much as 1 trillion barrels) of oil in the ground, and with among the world's lowest oil production cost structures, Saudi Arabia can actually benefit vis-a-vis its main competitors from low oil prices. Given the country's high reserve to production ratio (i.e., the time its oil reserves are expected to last at current production rates) of 100 years or more, low oil prices can help to accomplish several main economic objectives for Saudi Arabia. These include: deterring development of alternative energy sources, including increasingly economical 'unconventional' oil sources such as Canadian tar sands and Venezuelan orimulsion; maintaining Saudi market share against its main competitors both in and out of OPEC, especially in the key U.S. market; and deterring marginal non-OPEC oil production investment. "

It also pointed out negative impacts that the low prices have, especially in light of the Saudi economy's reliance on oil revenues, including a lowered GDP heightened unemployment, and an increased budget deficit.

"Low oil prices forced state oil and gas company Saudi Aramco, whose expenditures account for around 6% of Saudi GDP to reassess its capital expenditure program, to delay a series of upstream and refining projects (at an estimated savings of $2 billion this in 1998), and to defer bidding on the $150-$200 million Haradh (phase 2) crude oil production increment project." the report said, adding that it also caused the cancellation of $800 million in improvements to the Rabigh oil refinery.

The EIA report also said that work continues on the Hawiya gas processing plant, part of an effort to increase domestic consumption of natural gas and allow increased oil exports.

The UAE is expected to increase its oil export revenues by 2.2% over 1998 levels to $9.5 billion. The country's real GDP fell in 1998 by 5%, due to which, the report said, "The UAE has restrained government expenditures and looked towards possible economic reform." UAE pledged production cuts from February 1998 levels reached 382,000 bpd.

The EIA report added that low oil prices also affected non-OPEC countries, including Egypt, which experienced a 52% drop -- from $640 million to $310 million -- in oil export revenues during the first half of 1998 from the same period in 1997.

Previous Stories:
  Positive indicators for Algerian economy due to higher oil prices   (5/4/1999)
  5 countries to reduce oil production in April   (3/13/1999)
  Gadhafi wants freeze on crude oil production   (12/11/1998)
  OPEC's head calls on non-member states to reduce production   (10/12/1998)

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