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OPEC Members Are Facing High Fiscal Deficits

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Fiscal break-even cost may not be achievable until 2040

In its recent outlook, OPEC (Organization of the Petroleum Exporting Countries) stated that crude may not reach $95 by 2040. The fiscal break-even cost of different OPEC countries lies around more than $70 per barrel. The fiscal break-even cost of Saudi Arabia is ~$105. The US (SPY) is an important market for Saudi Arabia. In contrast, Iran’s fiscal break-even cost is around $130 per barrel.

All of the statistics above indicate a high fiscal deficit for OPEC members in the coming years. A high fiscal deficit indicates a cut in government spending. This can spread social unrest among the different OPEC nations. Experts view a high fiscal deficit related to the existence of the leadership crisis whether in individual OPEC nations or in OPEC itself.

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Since it’s more likely that crude will stay at the current levels for the next few years, OPEC countries will face serious leadership challenges in the coming years. Lower crude oil prices are a direct loss for crude oil exporters. Oil exports account for a significant portion of OPEC members’ GDP (gross domestic product). Countries like Libya and Algeria are facing a high fiscal deficit in 2015. Libya’s fiscal break-even cost is above $180 per barrel. Higher volumes are the only way to drive the revenue at lower energy prices. This can lead to lower crude oil prices. All of this means a more divided OPEC. It could signal plenty of oil in the future.

The above chart shows the fiscal break-even cost of prominent OPEC nations and other top producers.

Other top producers fiscal break-even cost

Russia (RSX) is an important player in crude oil. Its export fiscal break-even cost is around $105. Russia in a non-OPEC member country. Gazprom PAO (OGZPY), Lukoil (LUKOY), and Tatneft (OAOFY) represent the large-cap Russian ADRs (American depositary receipts) in the oil and gas sector.

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