THE FALL OF PETROL PRICES WEAKENS OIL PRODUCING COUNTRIES

From Le Monde 25-10-08

THE FALL OF PETROL PRICES WEAKENS OIL PRODUCTION COUNTRIES

"With a barrel of oil approaching $60 dollars, the period of the "fat cow" for the producers of black gold is finished," states Jean-Michel Bezat in his piece published on Friday, in Le Monde, Paris. Over-all for the more populated states which have drawn in petroleum revenues to finance their sometimes populist public politics--everything affects the balance of their budget. Particularly sensitive to the basis (in oil price), Iraq, Iran, Nigeria, Mexico or Venezuela come to know of the coming days and the disenchantment in the course of maintaining (their economies) at this level.

These nations are heavily dependent upon hydrocarbons,who were able to assure almost 90% of the budget receipts for export of this commodity. The petroleum states have "engrange" or hauled in close to one trillion dollars in 2007 (when the price of brut up to the first quarter of 2008) assured them again of comfortable revenues in 2008. But the year 2009 will be tight if the world plunges into recession and draws with it (these petrol-dependant nations) with the cooling of consumption and of the price of black gold.

These oil producing countries are not all in the same boat because they do not all have the same costs of production and addiction to black gold, or the same budgetary discipline. According to the International Monetary Fund (IMF) Iraq remains the most exposed. Its program of reconstruction of its petroleum industry requires a price per barrel of oil at $110 dollars (to be worth its extraction and transport costs). Baghdad, which possess the third largest world reserves hoped to more than double its export production from 2.5 to 6 million barrels per day in the next ten years with the help of the western oil companies.

Iran with the second highest reserves comes just behind. It brakes even with a barrel at $90 dollars to balance its budget, followed by Venezuela (around $80 dollars). In Algeria, the (overhead engendered by) its vast program of public investment in infrastructure requires a base price of minimum of $56 dollars a barrel. With less people and the benefit of oil which is more easily extracted, Quttar, Kuwait, Lybia and Saudia Arabia can content themselves with prices (respectively) of $24, $33, $47, and $49.

The president of Venezuela, Hugo Chavez, has recently confirmed that his country "ne sombreara pas" (will not sink) with a barrel at $60 dollars, but such a (price) situation has a risk of tightness. He (Chavez) has the benefit of petrodollars in reserve, but for how long? Venezuela's need for importation of materials of primary production, and of food weigh heavily (on the economy) without forgetting (not to mention) the generous social programs and foreign aid to those who follow the "Bolivarian Revolution". Domingo Maza Zaval, the former director of the central bank (of Venezuela) recently confided to the AFO that "With a barrel below $70 dollars, the costs of the balance of payments do not even out" (for Venezuela).

In Iran "Some Significant Damage".

The minister of finance of Nigeria, Mssr Shamsudeen Usman, has already announced a "revision of the (petroleum price) basis of the 2009 budget is established on a price per barrel (that is) too high." To a lesser extent Nigeria, Venezuela and Iran will be able to dispose of (sell) again important reserves of their hydrocarbons (it seems). However the case of Mexico is more alarming: the decline in (world) prices plays (into the) effect on the depletion of its fields and of the petrol giant Cantarell as well as the weaknesses of investments in the national company Pemex (especially) in (sectors such as) exploration, production and refining. Overall, (these) factors which have cut off receipts from the state (have also) weakened the conservative president Filipe Calderon.

For the directors of certain petroleum-producer nations the risk of political fractures becomes heavy if the basis (which has fallen by -55% in three months ) is amplified. As to Venezuela, the first test will be during their local and national election on November 23. In Iran the the bottoming out (of prices) during this period has exacerbated internal dissension, reenforcing the adversaries of President Mahmoud Ahmadinejad, elected in 2005 on the popular program of redistribution of the petroleum income, and who is accused of having increased dependence on a petroleum economy.

His predecessor, Akbar Hachemi Rafsandjani, has forewarned those who see the crushing financial defeat as a punishment for the west. Friday, in a radio sermon, the unfortunate rival of Rafsandjani, Ahmadinejad, is identified that the "the fall of petroleum has provoked great damage to our nation., accusing his successor of having wasted the revenue of the petroleum industry.

It is not surprising that Iran and Venezuela have reclaimed a strong basis of production, Friday, at the reunion of the OPEC. They have obtained a partial gain, without the cartel able to make a rise of price above the 90-100 dollar level, the price base (planche) for Caracas and Teheran. They are more "cocasse" comical that they have demanded of Saudia Arabia, the premier producer in the world, to carry alone the burden for those same benefits of maintaining their production and at one of a higher price!

In the immediate future, this (debut)coming out of the anti-shock petroliers goes to blunt the weapon of energy (arme de energetic) which permit ed Russia to intimidate its neighbors , and for Venezuela to sell its friendship in Latin America.

This is not perhaps the 'l'affaire de mois". Numerous experts judge that the price can not be raised because of the "ciseaux" (pincer) effect between the difficulty of access to the petroleum resources for political or technical reasons, which limit the offer and the revival of demand in the end of the recession.

Jeann-Michel Bezat (Translation: RJ Kalin)