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Claudia Cattaneo, Financial Post
Published: Tuesday, November 25, 2008
CALGARY -- After throwing a wrench into Canada's oil sands growth and messing up Alberta's budget surplus, slumping oil prices are beginning to bite into the government budgets of many OPEC members, Tristone Capital Inc. said in a report.
The Calgary-based energy investment dealer said Tuesday cartel outliers Iran and Venezuela are in the toughest spot, requiring oil at US$90 a barrel for their budgets to break even next year, while Nigeria and Bahrain need crude above US$70 a barrel.
Even producers in the Arabian Gulf are getting close to the oil price they need -- US$50 a barrel -- for their government budgets to break even. Oil settled at US$50.75 a barrel in New York Tuesday, down US$3.75 on worries the U.S. Energy Department will reveal a growth in oil inventories Wednesday, and down nearly US$100 since mid-July.
"There is a growing gap between what the required oil price is to balance the budget, and where we are at," Chris Theal, Tristone's head of research, said in an interview. "Iran and Venezuela are clearly in unsustainable territory."
But the brokerage doesn't see relief for another year on weak global oil demand and slack OPEC discipline. It expects oil prices to average US$50 a barrel in 2009, down 47% from its previous oil call of US$95 a barrel, rebounding to US$70 in 2010 and US$90 in 2011.
Indeed, Tristone sees a return to oil bull market conditions beyond 2010 as project cancellations and deferrals result in insufficient supplies starting in 2011. Tristone forecasts global spending on oil projects will fall by 30% to 40% in 2009 to US$275-billion.
"With the low price environment for oil over the next 12-18 months, we are setting the stage for under-investment in crude oil and in turn the next supply shock in two to five years," the brokerage said.
Tristone says Venezuela, which funds 46.5% of its budget from oil sales, needs US$90 a barrel to avoid a current-account deficit based on production of 2.4-million barrels a day. While Venezuela's national budget for 2009 is based on an average price of US$60 a barrel and production of 3.6-million barrels a day, Tristone said the country consistently underdelivers by 1.2-million barrels a day.
Tuesday, Venezuela's President, Hugo Chavez, suggested that OPEC return to a system of setting a price band for crude oil to enhance market stability, similar to the price band adopted in the late 2009 to keep prices between US$22 and US$29 a barrel.
Venezuela would consider a price of US$80 to US$100 a barrel to be "fair," Mr. Chavez said.
Iran is in the biggest trouble, having built its budget for fiscal 2008/2009 based on US$115 oil. Oil production accounts for 57.8% of government spending.
"These guys are actually dipping into their oil stabilization fund, the equivalent of the sovereign wealth fund, to fund programs," Mr. Theal said. "They are going into an election next year. How palatable is that going to be with an increasingly educated electorate?"
Meanwhile, Nigeria, which derives 85% of its budget from oil sales, needs oil to be around US$80 a barrel.
Outside OPEC, Russia, the world's second-largest oil producer, needs oil at US$70 to balance its budget, while Mexico's budget reflects oil at US$80 a barrel. Alberta, Canada's top oil producing province, based its 2008/2009 budget on oil averaging US$78 a barrel.
Falling oil prices hurting OPEC members
Published: Tuesday, November 25, 2008
CALGARY -- After throwing a wrench into Canada's oil sands growth and messing up Alberta's budget surplus, slumping oil prices are beginning to bite into the government budgets of many OPEC members, Tristone Capital Inc. said in a report.
The Calgary-based energy investment dealer said Tuesday cartel outliers Iran and Venezuela are in the toughest spot, requiring oil at US$90 a barrel for their budgets to break even next year, while Nigeria and Bahrain need crude above US$70 a barrel.
Even producers in the Arabian Gulf are getting close to the oil price they need -- US$50 a barrel -- for their government budgets to break even. Oil settled at US$50.75 a barrel in New York Tuesday, down US$3.75 on worries the U.S. Energy Department will reveal a growth in oil inventories Wednesday, and down nearly US$100 since mid-July.
"There is a growing gap between what the required oil price is to balance the budget, and where we are at," Chris Theal, Tristone's head of research, said in an interview. "Iran and Venezuela are clearly in unsustainable territory."
But the brokerage doesn't see relief for another year on weak global oil demand and slack OPEC discipline. It expects oil prices to average US$50 a barrel in 2009, down 47% from its previous oil call of US$95 a barrel, rebounding to US$70 in 2010 and US$90 in 2011.
Indeed, Tristone sees a return to oil bull market conditions beyond 2010 as project cancellations and deferrals result in insufficient supplies starting in 2011. Tristone forecasts global spending on oil projects will fall by 30% to 40% in 2009 to US$275-billion.
"With the low price environment for oil over the next 12-18 months, we are setting the stage for under-investment in crude oil and in turn the next supply shock in two to five years," the brokerage said.
Tristone says Venezuela, which funds 46.5% of its budget from oil sales, needs US$90 a barrel to avoid a current-account deficit based on production of 2.4-million barrels a day. While Venezuela's national budget for 2009 is based on an average price of US$60 a barrel and production of 3.6-million barrels a day, Tristone said the country consistently underdelivers by 1.2-million barrels a day.
Tuesday, Venezuela's President, Hugo Chavez, suggested that OPEC return to a system of setting a price band for crude oil to enhance market stability, similar to the price band adopted in the late 2009 to keep prices between US$22 and US$29 a barrel.
Venezuela would consider a price of US$80 to US$100 a barrel to be "fair," Mr. Chavez said.
Iran is in the biggest trouble, having built its budget for fiscal 2008/2009 based on US$115 oil. Oil production accounts for 57.8% of government spending.
"These guys are actually dipping into their oil stabilization fund, the equivalent of the sovereign wealth fund, to fund programs," Mr. Theal said. "They are going into an election next year. How palatable is that going to be with an increasingly educated electorate?"
Meanwhile, Nigeria, which derives 85% of its budget from oil sales, needs oil to be around US$80 a barrel.
Outside OPEC, Russia, the world's second-largest oil producer, needs oil at US$70 to balance its budget, while Mexico's budget reflects oil at US$80 a barrel. Alberta, Canada's top oil producing province, based its 2008/2009 budget on oil averaging US$78 a barrel.
Falling oil prices hurting OPEC members
Be nice if we have perpetual energy that never need fuel source. That'll kill OPEC. I'm very sure that WE do need oil anyway for making plastic, road pavements ect which are part of our needs!!!