OPEC Nations Expected to Feel Pinch

Oil export revenue for OPEC countries is expected to slide to $101 billion this year, down 32% from last year and the lowest since before the oil crisis of the early 1970s, a U.S. government report said Tuesday.

The sharp decline in world oil prices has thrown the budgets of many Organization of Petroleum Exporting Countries members into chaos as they cut costs and take other steps to control budget deficits, the U.S. Energy Information Administration said in a report on the cartel.

The OPEC basket price of oil sold by member countries averaged $12.37 a barrel during the first six months of 1998, compared with $19.30 last year.

Revenue for OPEC producers this year when adjusted for inflation should fall to the lowest point since 1972, one year before the Arab oil embargo against the United States, the EIA report said.

“Most OPEC countries are overwhelmingly dependent on oil export revenues, and declining oil prices have forced governments to respond through a variety of fiscal and monetary policy measures,” EIA said. Those measures include cutting oil-related subsidies and even devaluing currencies.

Also pushing down oil prices this year were a warmer winter in North America, increased Iraqi oil exports and reduced oil demand in East Asia due to the economic crisis there, according to the EIA.

“If low oil prices continue for a prolonged period of time . . . this could result in long-term reductions in OPEC oil export revenues, and would most likely force OPEC countries to make difficult economic/social/political trade-offs,” the EIA said. The report put last year’s export revenue at $149 billion.

Rilwanu Lukman, OPEC’s secretary general, told a London energy conference Tuesday he expected oil prices to rise, especially after 2000: “The determination of OPEC, not only in reaching a consensus on reducing their own output, but also in approaching non-OPEC producers and convincing them to share the burden of stabilizing oil markets, makes me feel optimistic that prices can regain a reasonable level in the not-too-distant future.”

Oil producers will see profits improve after 2000, when demand rises and the overall oil market tightens, he added.

Earlier this year, OPEC members agreed to cut 2.6 million barrels per day of output to shore up prices. But with widespread cheating on the cuts, prices failed to rebound.

“We are talking to [OPEC member countries] and we expect them to do better,” Lukman said, referring to the output cuts.