OPEC Heads Of State Gather In Saudi Arabia

Opec countries’ oil export revenues – excluding Iran – reached $982 billion last year, up by 5% over the previous year, according to Energy Information Administration estimates. This marks a record for EIA estimates covering the 1975-2012 time period, with Saudi Arabia accounting for 32% of the total.

But revenues are projected to fall this year and next, based on forecasts included in the EIA’s July 2013 Short-Term Energy Outlook. Opec oil export revenues in 2013 will total just $940 bn, falling further to $903 bn next year, without adjustment for inflation, according to EIA analysis.

“EIA expects Opec revenues from crude oil exports to decline in 2013-2014 largely because of rising non-Opec production, which is projected to increase by 1.2 million barrels per day in 2013 and then by another 1.6 MM bbl/d in 2014,” EIA analyst Erik Kreil told Breaking Energy. “These increases are substantially more than projected demand increases of 0.9 and 1.2 MM bbl/d,” he said.

“EIA projects that Opec members will need to cut production in order to keep oil supply growth in line with demand growth,” said Kreil. He added that even with production cuts, Opec “will not be entirely successful” in keeping prices at 2012 levels, with Brent crude forecast to fall by $7/bbl this year and another $5/bbl in 2014.

EIA’s estimates incorporate historical price differentials for various Opec grades to benchmarks Brent and West Texas Intermediate, and assume sales reflect prevailing spot prices. A large share of Opec crude is sold under long-term contract.

And Iran is excluded from estimates, “because of the difficulty in making a meaningful estimate of the revenues that Iran currently receives from its oil exports, including its inability to receive payments and possible price discounts it offers to its existing customers”, Kreil said. Under US sanctions, transactions with certain Iranian entities, including the Central Bank of Iran, are severely proscribed. In the event that this prohibits oil transactions through normal channels, this could in turn increase transaction costs for oil buyers willing to either flout sanctions or pay via alternative methods, and potentially force Iran to sell its oil at a discount.

“It is not clear what prices customers are actually paying for Iranian oil, and neither official selling prices nor spot price estimates likely reflect true selling prices,” Kreil said. He added that there have been reports of Iran making barter arrangements for oil sales, such as exchanging crude for grain or oil tankers. “Valuing these is not possible without seeing all of the details of the transactions,” Kreil said.