MercoPress. South Atlantic News Agency

Slumping oil prices deepen rift among OPEC members

Slumping oil prices are beginning to bite into the government budgets of many OPEC members generating different opinions regarding supply and price policies, according to the latest report from an oil energy investment dealer based in Calgary, Canada's oil capital.

According to the Tristone Capital Inc. report, cartel hardliners such as Iran and Venezuela are in the toughest spot, requiring oil at 90 dollars a barrel for their budgets to break even next year. Nigeria and Bahrain need crude above 70 dollars a barrel and even producers in the Arabian Gulf are getting close to the oil price they need, 50 USD a barrel, for their government budgets to break even. Saudi Arabia the cartel's group is believed to be able to sustain a period of low prices. But the Canadian experts don't see relief for another year on weak global oil demand and slack OPEC discipline. It expects oil prices to average 50 USD a barrel in 2009, down 47% from its previous oil call of 95 USD a barrel, rebounding to 70 USD in 2010 and 90 USD in 2011. A return to oil bull market conditions beyond 2010 is forecasted as project cancellations and deferrals result in insufficient supplies starting in 2011. Global spending on oil projects is expected to fall by 30% to 40% in 2009. Tristone says Venezuela, which funds 46.5% of its budget from oil sales, needs 90 USD a barrel to avoid a current-account deficit based on production of 2.4 million barrels a day. While Venezuela's national budget for 2009 is based on an average price of 60 USD a barrel and production of 3.6-million barrels a day, the report recalls that Venezuela consistently under delivers by 1.2-million barrels a day. Venezuela's President, Hugo Chavez suggested this week that OPEC return to a system of setting a price band for crude oil to enhance market stability, similar to the price band adopted in the late 200o to keep prices between 22 and 29 USD a barrel. Venezuela would consider a price of 80 to 100 USD a barrel to be "fair" said Chavez who during the recent governor and mayor electoral campaign admitted "tough times" ahead because of the oil prices. However Iran is in the biggest trouble, having built its budget for fiscal 2008/2009 based on 115 USD the barrel of oil. Oil production accounts for 57.8% of government spending. Meanwhile, Nigeria, which derives 85% of its budget from oil sales, needs oil to be around 80 USD a barrel. Outside OPEC, Russia, the world's second-largest oil producer, needs oil at 70 USD to balance its budget, while Mexico's budget reflects oil at 80 USD a barrel. Alberta, Canada's top oil producing province, based its 2008/2009 budget on oil averaging 78 USD a barrel. OPEC which accounts for more than 40% of global oil exports is scheduled to meet in Cairo on Saturday where they will address the triple effect, lower prices, falling demand and declining revenue. However the Ecuadorean delegate Derlis Palacios pointed out that the Cairo meeting is to assess the situation and debate, and prepare for Algeria in December when decision will be made. Ecuador a marginal OPEC oil producer and very much cash strapped and increasingly isolated from world money markets, does not favour production cuts. Some OPEC hardliners have suggested that Russia is considering adhering to the cartel's supply and quota policies.