Long road to $539 billion OPEC oil earnings in 2017

The US Energy Information Administration (EIA) projects that OPEC net oil export revenues will rise to about $539 billion dollars (unadjusted for inflation) in 2017, based on projections of global oil prices and OPEC production levels in the organisation’s May 2017 Short-Term Energy Outlook (STEO).

On a per capita basis, the EIA said that OPEC net oil export earnings are expected to increase by about 18 percent from $912 in 2016 to $1,112 in 2017. The expected increase in OPEC’s net export earnings is attributed to slightly higher forecast annual crude oil prices in 2017 compared with 2016 as well as slightly higher OPEC output during the year.

For 2018, OPEC revenues are projected to be $595 billion, with an increase in forecast crude oil prices, coupled with higher OPEC production and exports, contributing to the rise in overall earnings.

EIA expect these projections will outstrip 2016 performance. Data compiled by the organisation estimates that members of the Organization of the Petroleum Exporting Countries (OPEC) earned about $433 billion in net oil export revenues (unadjusted for inflation) in 2016.

This represents a 15 percent decline from the $509 billion earned in 2015, mainly as a result of the fall in average annual crude oil prices during the year, and to a lesser extent to decreases in the level of OPEC net oil exports. This revenue total was the lowest earnings for OPEC since 2004. The net oil export revenues reflect OPEC members as of May 2017.

According to the organisation, these net export earnings include Iran, which the EIA did not include in reports published between 2012 and 2015. However, Iran’s net export revenues are not adjusted for possible price discounts the country may have offered its customers between late 2011 and January 2016, when nuclear-related sanctions targeting Iran’s oil sales were in place. Saudi Arabia earned the largest share of these earnings, $133 billion in 2016, representing approximately one-third of total OPEC oil revenues.

For 2016, the EIA estimates that members of OPEC earned about $433 billion in net oil export revenues (unadjusted for inflation).

However OPEC has an uphill task to achieve this projection prominent of which is a supply glut currently witnessed in oil markets and the threat from shale producers. To shore up prices OPEC has agreed to extend a 1.8 million production cuts agreed with non-OPEC producers till the first quarter of 2018.

Achieving a consensus to cut production creates a problem of its own. Immediately after the agreement was reached crude prices began to fall because refiners in Asia were mostly concerned with security of supplies.

Since crude is the biggest cost for refiners and the petrochemicals industry, margins are susceptible to the swings in benchmark prices. Many open up their reserves, helping to push prices until supply production up with consumption.

Currently OPEC is still struggling to get global demand to exceed supply which is expected to move prices beyond $60. However demand is not rising fast enough while production signals remarkable growth. Ibe Kachikwu, Nigeria’s minister of state for petroleum resources has said that Nigeria is poised to recover 2014 production levels before the end of year.

Libya’s crude oil production grew to 814,000 bpd (barrels per day) in early May 2017, according to National Oil Corporation, the highest level since 2014. The restart of production at the Sharara and El Feel fields led to the rise in Libya’s crude oil production.

Libya and Nigeria secured exemptions from the production cut deal on May 25, 2017 which is raising fears it will affect oil prices and cast doubts over EIA’s forecast of a $539 billion revenue for OPEC in 2017.

ISAAC ANYAOGU