The Low Oil Price Guts Another OPEC Oil Exporter

The low oil price is negatively impacting another OPEC oil exporter as it continues to liquidate its foreign exchange reserves.  Algeria, like Saudi Arabia, has seen its international reserves plummet by more than 40% as the oil price fell in half since 2014.

Algeria joined OPEC back in 1969 and is currently producing 1.1 million barrels of oil per day (mbd).  While Algeria is not one of the larger OPEC members, it still exports roughly 670,000 barrels of oil per day.  At $50 a barrel, the country receives $33.5 million a day in oil revenues.  However, Algeria’s oil revenues have taken a nose-dive as the oil price declined from over $100 in 2014 to below $50 currently:

As we can see in the chart above, Algeria’s net oil export revenues fell from $61 billion in 2012 to $19 billion last year.  Thus, Algeria’s net oil export revenues fell nearly 70% in the past four years.  This has negatively impacted the country’s financial balance sheet.  To make up for declining oil revenues, Algeria has liquidated $70 billion of its international reserves since the end of 2014:

Unfortunately, the liquidation of Algeria’s foreign exchange reserves hasn’t been enough to stem the tide of its falling oil revenues.  According to the article on Zerohedge, Algeria Officially Launches Helicopter Money Amid Sliding Oil Revenue, Budget Crisis:

On Sunday, Algeria’s prime minister unveiled a plan to plug the country’s budget deficit as the the OPEC member state looks to offset lower oil revenue by directly borrowing from the central bank, while avoiding international debt markets. In other words, direct monetization of debt, which bypasses commercial banks as a monetary intermediate, and is better known as “helicopter money.”

According to Bloomberg, the five-year plan presented by Prime Minister Ahmed Ouyahia aims to balance the budget by 2022, and reverse a deficit that ballooned with the plunge in global crude prices, which also cut foreign reserves by nearly half.

“If we turn to external debt, as the IMF suggests, we will need to borrow $20 billion a year to repay the deficit and within four years we will be unable to repay the debt,” Ouyahia said. “This is what made the government look at non-traditional financing.”

Algeria’s Prime Minister has decided to print money directly from its central bank rather than access debt via the international market.  Thus, Algeria is now embarking on the policy of “Helicopter Money dropping” to offset the massive decline in its oil revenues.

I knew more OPEC oil exporting countries would succumb to alternative monetary policies as the low oil price is gutting the entire global oil industry.  Furthermore, the article linked above stated the following:

Incidentally, while other OPEC nations have been rumored to consider such a currency devaluation “nuclear option” in light of oil prices that are far below “budgetary breakevens” for most OPEC nations, it was not until today that it was finally implemented. And now that that the first country has succumbed, the question is who is next.

So, Algeria was the first OPEC member to select the “nuclear option” of outright unsterilized monetary printing.  This could cause serious inflation in the Algerian economy.  If the oil price does not head back up to $70-$80, we will likely see more OPEC members elect to implement additional “monetary options” besides liquidating international reserves to fortify its balance sheet.

The U.S. and global oil industry is in serious trouble… but we have only begun to see just how bad things will get over the next few years.

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14 Comments on "The Low Oil Price Guts Another OPEC Oil Exporter"

  1. Hi Steve,

    Should Europe expect Algeria to becoming another source of immigration?
    Where do you see a possible point which the avalanche effect of direct debt monetization can start from among OPEC countries, or at least among the more exposed to revenues drop?

  2. And what about the theory of oil cycles? When prices drop, investment in oil extraction and exploration is also cut down. In the course of time it leads to oil shortages and price hikes.

  3. This policy by algeria is a very poor. it only helps the government because they get to spend the money first inside algeria. the dinar will be under pressure and lose its purchasing power abroad real fast. nobody wants the dinar and they will want it less now. i see no real gain here only losses for the people. only the usa can print money at will because the dollar is the world reserve currency.

    inflation in general sets many bad forces loose in the economy and it is hard to see by most people.

    algeria would be better off biting the bullet on its budget. spend the remaining reserves if needed. that is what they are for. demand payment in gold for its oil. give a discount for gold purchase.

    • “demand payment in gold for its oil”

      Impossible, unless they’re inviting humanitarian bombers. Or unless they have nukes.

  4. An interesting essay from oilprice.com

    Unknown Oil & Gas Deal Just Changed The Global Energy Balance

    One of the biggest energy stories this year has been Russia’s Rosneft buying India’s Essar Oil — giving the Russian company a firm grip on one of the world’s biggest emerging oil and gas markets.

    And this past week, that story got more complex. With Rosneft striking another big deal — drawing in another heavyweight energy nation.

    China.

    http://oilprice.com/Energy/Oil-Prices/Unknown-Oil-Gas-Deal-Just-Changed-The-Global-Energy-Balance.html

    • BTY…. If you follow through on some of these essays you will find they are not talking about an ABSENCE OF ENERGY AVAILABILTY SO MUCH AS A REARRANGEMENT OF ENERGY AVAILABILTY, if I can put it in those words.

      The BRI (Belt Road Initiative) or OBOR (One Belt One Road) is an example of this.
      https://journal-neo.org/2017/05/27/eastern-europe-tilts-to-obor-and-eurasia/

      ” China is the world’s largest importer of oil, the vast majority of it still paid in US dollars. If the new Yuan oil futures contract gains wide acceptance, it could become the most important Asia-based crude oil benchmark, given that China is the world’s biggest oil importer. That would challenge the two Wall Street-dominated oil benchmark contracts in North Sea Brent and West Texas Intermediate oil futures that until now has given Wall Street huge hidden advantages.”
      https://journal-neo.org/2017/09/13/gold-oil-dollars-russia-and-china/

      Soooo….. the essays I read; which I believe are from respectable sources indicate the (immediate) real problems are with each counties economic viability.

      Tell me I am wrong

  5. With regard to “Helicopter” money; it is a play on words. “Helicopter money” is meant to frighten people, a derogatory term used by the bankers to denigrate “the peoples money”, “free money” or “public money” from a countries own “Public Bank” or what is commonly known as the “Peoples Bank”.

    There are plenty of examples of these prior to the “Federal Reserve ACT of 1913”. The “Royal Bank of Canada” and the “Commonwealth Bank of Australia” are two examples.

    “PUBLIC BANKS” can operate PARALLEL to “PRIVATE BANKS” successfully. There is nothing wrong with a country “Nationalising” some of its assets. The bankers have turned that (Nationalisation) into a dirty word as well.

    If one decides to go down this path you end up with a rocket up your arse from the biggest bullies on the block who are the only ones who benefit from the “Federal Reserve ACT of 1913” and the “Reserve Dollar”.

    I think somewhere down the track “DRONES” will level the playing field at a fraction the cost!!!! So much for the country (I don’t have to mention it by name) that has raped and denuded is own resources to the extent it now has to rape and pillage other countries for theirs.

    • DisappearingCulture | September 21, 2017 at 7:03 am | Reply

      “PUBLIC BANKS” can operate PARALLEL to “PRIVATE BANKS” successfully.”

      “Public bank” is not a term that is accurate or applicable to the Federal Reserve. The public has no real access. Even government has little to no control over it. It is some sort of pathological symbiosis between the government and this central bank. Actually this central bank is parasitic all the time, and symbiotic some of the time.

  6. Thanks Steve, regards

  7. It is not just the decline in the price of oil but peak oil and decline for Algeria (even during a time of increasing prices). Oil production was 1.65 million barrels a day in 2005-2007 but has declined to 1.1 million barrels a day as you say.
    Peak oil and descending Hubbert curves may or may not have arrived for the world as a whole but is a reality for most producers (Hallock et al 2014); The consequences of this for world political events is brilliantly developed by Nafeez Ahmed.
    The world continues to ignore peak oil at its peril.

    references:
    Ahmed, Nafeez. Failing States, Collapsing Systems BioPhysical Triggers of Political
    Violence.(Springer Nature $55).
    Hallock Jr., John L., Wei Wu, Charles A.S. Hall, Michael Jefferson. 2014.
    Forecasting the limits to the availability and diversity of global conventional
    oil supply: Validation. Energy 64: 130-153.
    (Article 12 in: http://www.sciencedirect.com/science/journal/03605442/64/supp/C
    http://www.sciencedirect.com/science/journal/03605442/open-access

  8. Conventional Oil Peaked in 2006 –IEA-EIA-NATURE-ENERGY
    http://imgur.com/a/uCz7V
    http://www.nature.com/nature/journal/v481/n7382/full/481433a.html
    http://www.sciencedirect.com/science/article/pii/S0360544213009420

    New Oil discoveries by scientists have been declining since 1965 and last year was the lowest in history –IEA
    http://imgur.com/a/W60yn

    We have been draining our oil reserves by consuming more oil than we discover since the 1980’s – ASPO
    http://imgur.com/a/uJ0Rg

    Aging giant oil fields produce more than half of global oil supply and are declining as group – CSM-HOOK 2009
    https://www.csmonitor.com/Environment/Energy-Voices/2013/0412/The-decline-of-the-world-s-major-oil-fields

    Saudi Arabian oil reserves are overstated by 40% – Wikileaks
    https://www.theguardian.com/business/2011/feb/08/saudi-oil-reserves-overstated-Wikileaks

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows-WSJ
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead– WSJ
    https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790

    UAE warns of world oil shortages ahead by 2020 due to industry spending cuts
    http://www.arabianindustry.com/oil-gas/news/2016/nov/6/more-spending-cuts-as-uae-predicts-oil-shortages-5531344/

    Saudi Aramco CEO believes oil shortage coming despite U.S. shale boom– FOX NEWS/REUTERS
    http://www.foxbusiness.com/markets/2017/07/10/saudi-aramco-ceo-believes-oil-shortage-coming-despite-u-s-shale-boom.html
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    Halliburton CEO says oil will spike due to oil shortages by 2020 after Industry Cuts -BLOOMBERG
    https://www.bloomberg.com/news/articles/2017-07-12/halliburton-sees-2020-oil-spike-after-industry-cuts-2-trillion

    Total CEO warns we are going to have oil shortages around 2020 due to lack of investment & new discoveries
    http://www.boursorama.com/actualites/je-suis-convaincu-qu-on-va-manquer-de-petrole-selon-le-pdg-de-total-patrick-pouyanne-9b2d911a65572f5f989a74319b68d296

    Chevron CEO warns US shale oil alone cannot meet the world’s growing demand for crude
    https://www.cnbc.com/2017/05/01/us-shale-cannot-meet-the-worlds-growing-oil-demand-chevron-ceo-warns.html

    HSBC Global Bank warns 80% of the worlds conventional fields are declining and world oil shortages by 2020
    https://www.research.hsbc.com/R/24/vzchQwb

    UBS Global Bank warns of industry slowdown and world Oil Shortages by 2020
    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/12136886/Oil-slowdown-to-trigger-supply-crisis-by-2020-warns-bank.html

    Wood Mackenzie warns of oil supply crunch and world oil shortages around 2020
    http://oilprice.com/Energy/Crude-Oil/The-Next-Oil-Price-Spike-May-Cripple-The-Industry.html

    Energy watchdog warns oil and electricity shortages could develop as investment falls
    https://www.cnbc.com/2017/07/10/watchdog-warns-of-oil-and-electricity-shortages-as-investment-falls.html

    Oil Discoveries at 70-Year Low Signal Supply Shortfall Ahead
    https://www.bloomberg.com/news/articles/2016-08-29/oil-discoveries-at-a-70-year-low-signal-a-supply-shortfall-ahead

    Why investors’ should brace for a devastating oil shortage ahead around 2020
    http://www.marketwatch.com/story/why-investors-should-brace-for-a-devastating-oil-shock-ahead-2017-07-03

    People are almost completely ignoring a looming crisis for oil
    http://www.businessinsider.com/the-future-of-oil-supply-and-demand-2016-9

    It Will Take 131 Years To Replace Oil, And We’ve Only Got 2 (Malyshkina 2010)
    http://www.businessinsider.com/131-years-to-replace-oil-2010-11

    German Government (leaked) Peak Oil study concludes: oil is used directly or indirectly in the production of 90% of all manufactured products, so a shortage of oil would collapse the world economy & world governments
    https://www.permaculture.org.au/files/Peak%20Oil_Study%20EN.pdf

    The Oil Age may come to an end for a shortage of oil. ~ Saudi Oil Minister Sheikh Yamani

  9. We have been reading the news about the chinese gamechanger to import their oil for yuan and make those juans redeemable to gold for oil exporters. I assume this will become reality possibly as soon as by 2018. I don’t think i have to explain what such a system would mean for the petrodollar system. I don’t think i need to explain what it would mean for the Gold price either. What was not mentioned in those recent articles is what it would mean for the oil price but mere logic would suggest that the oilprice would have to go skyrocketing together with gold. So as the oilprice would go skyrocketing so would most items of daily use as most of them are depending on low energy cost. So hyperinflation would not be far away as an important player on the world markets returned to a de facto “gold standard” even if it would be for oil trading only. For me this sounds line there’s gonna be a looooot of trouble ahead.

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