Oil prices slump, OPEC countries suffer - August 13, 2017

Oil prices slump, OPEC countries suffer

In the last years, oil prices fell 50% which makes several OPEC countries suffer. Although they decided to hold their production back to raise crude prices that doesn’t help all their members to balance their budgets. That might not change soon.

Low oil prices make oil-dependent countries suffer on how to balance their budget, and the situation is the worst for the members of OPEC (Organization of the Petroleum Exporting Countries). According to Statista, “Nigeria, Venezuela and Saudi Arabia are most dependent on oil revenue. As our chart shows, the current price (even though it has recovered somewhat lately) is still far too low for most OPEC members to balance their budgets. Only Iran and Kuwait are in the clear – if the price stayed stable, which is highly unlikely.”

Last year, we wrote about how OPEC countries decided to hold back their production and even before that we analysed the upcoming situation thoroughly. We concluded that even if OPEC countries have the will of iron in slowing down their production, there are several other circumstances that may interfere with their plans.

That shows in the historic Brent prices too. Falling slowed in the last year, but prices are still changing often and Brent can’t break through the $60 barrier, which would be best for most OPEC countries. No matter how hard they try to slow their production, prices don’t go up, even if they started to compete in how much they hold back themselves.

The reason is simple: other countries are revving up their production and the US is restarting shale oil production. According to some opinions, with their huge shale reserves, the US has the most oil now. There is a price sweet point for them at around $40-50 to produce oil, but in the last year, technology advanced far, and that makes production cheaper and cheaper for them.

Therefore, oil prices are expected to stay roughly the same as now and that may test the will of OPEC countries again.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.