Smaller producers within Opec are expected to toe the line of bigger oil producers like Saudi Arabia in maintaining output, despite their economies facing severe difficulties due to the drop in global oil prices.
“There is big division within Opec among groups of countries. The economies of some countries like Nigeria, Venezuela and Algeria are strained right now. But I don’t think that gives them the capital to be able to pressure for any king of change in production policies within Opec,” said Edward Bell, a commodity analyst at Emirates NBD.
He said a number of smaller producers had become overly dependent on oil as a source of revenue, when prices were high, and did not make efforts to diversify their economies.
“Even if the price trades at $50 [Dh183] it’s still going to be quite a while before you have any kind of changes or reforms in lot of these economies that can accommodate these lower oil prices. The prices are not going to rally much beyond where they are now,” he added.
“Even Gulf producers are under pressure due to drop in oil prices but they have cash reserves to overcome the problem.”
The economies of oil producers like Venezuela, Nigeria and Algeria have been badly hit by the oil price drop.
Venezuela is in the grip of civil unrest and the revenues of Nigeria and Algeria have been dwindling over the past two years.
According to International Monetary Fund (IMF) Nigeria’s oil and natural gas exports earned $52 billion in 2015, $35 billion less than in 2014, which is mostly attributed to the fall in oil prices.
Venezuela, one of the largest producers of oil in the world, is the worst affected. With oil accounting for 95 per cent of the country’s export earnings, plummeting world prices have sent the South American economy reeling towards collapse.
People are going hungry and inflation has spiralled out of control, media reports have said. A number of airlines have suspended their operations as the economic situation deteriorates.
“The reduction in revenue will merely exacerbate the underlying discontent,” said Justin Dargin, an energy expert at the University of Oxford.
“We can expect social unrest in some of the other Opec countries, such as Venezuela, Nigeria, Iraq, and perhaps Algeria. However, these countries have already had numerous economic and political issues percolating even before the oil price decline.”
According to him, there is less urgency among Opec members for a production freeze to be implemented as oil prices inch upward.
“There is already a de facto export reduction due to peak demand season in many Opec member countries, as well as many consuming countries. Therefore, over the summer months, we can see a gradual strengthening of the price floor.”
Opec meeting will take place in Vienna on Thursday. Analysts said no deal is expected at the meet.
© Al Nisr Publishing LLC 2021. All rights reserved.