The Organization of Petroleum Exporting Countries (OPEC) is anticipating revenue decline this year and the next as demand for their crude diminishes, according to the Energy Information Administration, the US Department of Energy's research arm.
The 12-member OPEC net oil export revenues hit an all-time high of USD 900 billion in 2012, before falling to USD 826 billion in 2013. EIA did not include Iran due to lack of available data. This was a 7% decrease from 2012 earnings, but still the second-largest earnings totals during the 1975-2013 period for which EIA has tracked OPEC oil revenues.
EIA report reveals, "OPEC earnings declined largely for two reasons: a drop in OPEC oil production in 2013 (largely because of the supply disruption in Libya), and a 3% decline in average crude oil prices (as measured by the Brent crude oil price marker)."
As the largest OPEC producer, Saudi Arabia amassed the biggest chunk of the revenues. Its proceeds reached USD 274 billion last year, compared to USD 297 in 2012 - its highest intake ever.
Kuwait accumulated the second largest revenues in the group at USD 92 billion, with Iraq (USD 86 billion) and Nigeria (USD 84 billion) close behind. UAE's net oil export revenues stood at USD 53 billion, EIA data shows.
However, the EIA expects OPEC revenues to decline to about USD 774 billion in net oil export revenues in 2014 and USD 723 billion in 2015.
"These declines from the 2013 level are the result of projected declines in the call on OPEC crude oil production because of the large increases in non-OPEC production for 2014-15, as well as expected crude oil price declines that are also the result of declines in the call on OPEC crude oil production."
The International Energy Agency's forecast echoes the EIA's prognosis. The Paris-based agency believes the 'call' on OPEC for the second half of the year will be lower by 350,000 bpd to 30.6 million bpd on improved non‐OPEC supply and lower demand, and is forecast to dip to 29.8 million bpd in 2015 from 29.9 million bpd in 2014.
Price Risks
The EIA estimates may turn out to be conservative, especially if oil prices rise on geopolitical tensions. Brent crude prices have remained muted despite geopolitical tensions, but analysts fear markets are under-estimating the risks.
"Risks of an oil price spike are higher due to recent developments in the Middle East, while those related to Ukraine are still present," said the International Monetary Fund in its latest report.
However, if the risks are due to cut in production in Libya or Iraq, OPEC revenues will probably collectively be reduced. "There are various hotspots in the Middle East, which could see further instability, leading to oil supply disruption and oil price spikes and a lasting higher risk premium on oil markets," warns Deutsche Bank in a report. "Depending on the duration of these developments, these events could be a trigger for lower global growth."
The German bank notes that key triggers could be either a regional spill-over of the conflicts in Syria/Iraq, potential knock-on effect on Turkey where this would add to economic, financial and domestic policy weakness. Further escalation from Israel/Palestinian or Israel-Iran conflict could end up with potential pre-emptive attack by Israel on Iran nuclear facilities, and potential retaliation from Palestinian and Lebanese armed groups are further risks that could change the global economic environment.
Growth of OPEC
OPEC countries are expected to lose ground to non-OPEC oil producers over the next few years, before regaining market share. A number of countries including the United States, Canada, Brazil and Kazakhstan are expected to ramp up production aggressively.
According to the IEA, the role of OPEC in quenching the world's thirst for oil is temporarily reduced over the next 10 years, due to rapid growth of supply from light tight oil in the United States, from oil sands in Canada, from deepwater production in Brazil and from natural gas liquids from all over the world.
OPEC crude production will grow marginally from 37.6 million barrels per day (bpd) in 2012 to 37.8 million bpd by 2020. In sharp contrast, non-OPEC output will rise to 55 million bpd in 2020, compared to 49.4 bpd in 2012.
"But the share of OPEC countries in global output rises again in the 2020s, as they remain the only large source of relatively low-cost oil. Iraq is the single largest contributor to global production growth."
However, many OPEC countries are fiscally vulnerable and need to maintain healthy crude revenues in the short term to ensure they can continue to fuel their non-oil economy, fund the investment programs that have been initiated to create jobs. As such, the IEA believes OPEC countries will act to defend prices vigorously, as they can ill-afford to remain in a situation of depressed crude prices for a long time.
In short, most OPEC countries can no longer count on steady revenues flowing into their coffers till the end of this decade. And that means, they need to strengthen the non-oil sector to ensure they are not caught out as non-OPEC production eats into their market share.