Even before the results of the Brexit referendum were announced, the price of oil was falling in most countries. A report from the U.S. Energy Information Administration (EIA) in mid-June indicated that OPEC lost $349 billion in revenue last year because of low oil prices, cutting revenues almost in half from the year before.
OPEC’s 2015 oil export earnings came in at $518 billion according to the report—a 46 percent drop—thanks to $50 oil. The result of the low-priced environment was an overall account deficit for the 13-member countries to the tune of some $99 billion in 2015, compared to a $238 billion surplus in 2014.
Before 2015, the most recent OPEC deficit was in 1998, when high inventories pushed oil prices to $10.
At the core of the faltering prices is OPEC itself and its refusal for years to do anything to cut down its oil production which has led to millions of barrels of excess crude. The EIA projects OPEC revenues this year to drop to $341 billion. That will result in per capita oil export revenues in OPEC countries falling from $606 in 2015 to $503 this year. The EIA also predicted that oil export revenues will fall 15 percent in 2016, before rising in 2017.
OPEC members met in Vienna at the beginning of the month but the 2-day meeting ended without any clear signs of any agreement for a future freeze on oil production, mostly due to the rivalry between Saudi Arabia and Iran, the latter determined to make up for time lost during the years when sanctions limited the amount of oil it was allowed to produce.
The EIA report showed the largest losses coming from Saudi Arabia, which saw revenues plunge nearly in half from $247 billion to just $130 billion last year. The situation in Riyadh is far from dire, however, as the revenues from the country’s oil exports still account for one third of the total OPEC earnings.
Despite the poor showing in OPEC revenues, which were the lowest since 2005—OPEC managed to increased production by 0.8 million barrels per day, largely due to the efforts of Saudi Arabia and Iraq to defend their market share in any and all manner. The increase in OPEC oil production ironically added to the total revenue decline.
US Oil Production Declining
In the U.S. oil production continues to decline after a brief rally earlier this month. Last week output fell by another 39,000 barrels per day according to weekly EIA estimates, dipping to 8.677 million barrels per day. New projects coming online in the Gulf of Mexico will add 500,000 barrels per day to the U.S. total this year and 2017 offsetting much of the expected losses in U.S. shale, but the chances for a lucrative industry outside of the Gulf of Mexico are still uncertain.
The direction of oil prices in the short term is anyone’s guess but some analysts see the oil market moving into balance as early as the second half of the year and that oil prices may rise and fall from day-to-day or week-to-week, but prices should trend in an upward direction. That means OPEC revenues may begin to rebound next year after two miserable years of low oil prices.