As oil prices continue to fall, the average price received by OPEC is now approaching $40 a barrel. A recent analysis by PFC Energy suggests that this price is well below what most of the members need to balance their budgets. Venezuela is said to need oil at $102; Iran at $83, the Saudis at $54; Kuwait at $52; and the UAE at $45.
In deciding on the next round of production cuts, OPEC’s first problem is non-OPEC production which would be under no obligation to make cuts. The fear is that as OPEC mandates production cuts, their market share would be taken over by relatively stable non-OPEC production. OPEC therefore seems to be making a major effort to involve non-OPEC exporters, particularly Moscow, in a decision to reduce production.
OPEC will meet November 29th in Cairo and then again in Oran on December 17th. Statements from various OPEC oil ministers suggest that a major cut (1.5 million b/d+) will be made at the Oran meeting, although a token cut may be made at the earlier Cairo meeting.
Although 2008 has been a good year for OPEC with estimated revenues of nearly $1 trillion dollars, 46 percent above 2007 earnings, this is down from the $1.2 trillion they were expecting. The larger OPEC countries have found ways to spend their windfalls as fast as they are earned and are nearly totally dependent on their oil revenues to support large and restless populations. If worldwide demand continues to fall faster than OPEC can make real production cuts, then several OPEC members may soon be having as much or perhaps more trouble than the rest of the world.