OPEC’s Bad Bet By The Numbers
As the December 4, 2015 OPEC meeting in Vienna approaches, OPEC members have the tools to assess the impact of “lower for longer” crude prices on their countries. Serendipitously, the IEA in its recently published World Energy Outlook 2015 describes a low price scenario in which crude stays around $50/barrel through the current decade’s end. It is based on four assumptions: lower near-term global economic growth, a less unstable Middle East, continued OPEC emphasis on market share, and resilient non-OPEC supply. Equally serendipitously, the IMF October 2015 World Economic Outlook projections are premised on $51.62 crude in 2015 and $50.36 crude through 2020 and therefore show the impact ~$50 crude through the end of the decade would have on OPEC in general and the economies of individual OPEC members.
It’s not very pretty with crude at ~$50 per barrel—and therefore is likely to be uglier since the OPEC basket crude price in 2015 will average ~$47 and OPEC basket crude, which generally trades at a discount to Brent crude, would average below $50 in the IEA scenario.
Economic Consequences of a Wager Gone Bad
In national currencies, it appears that OPEC members will show steady, if not spectacular, growth through 2020 with “lower for longer crude,” and that the GDP of each member will exceed 2014 levels before the end of the decade.
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