Oil prices yesterday recorded the largest monthly decline since March, as markets feared that a new wave of the pandemic in the U.S. and Europe could further reduce global demand.
In this gloomy international context, the national economic outlook is likely to become even more uncertain, given our country’s heavy dependence on fluctuations in hydrocarbon export revenues.
Brent crude oil, which had been hovering above $40 a barrel in recent months, has dropped sharply in just a few days of trading, which could undermine the forecasts included in the 2021 budget bill (PLF-2021), based on an average reference price of $40 a barrel.
The second episode of reconfinement, which is taking place across the major economies, could seriously undermine the stability of the black gold markets, in the wake of negative oil quotations – as already happened last spring, in the first wave of Covid-19 – and once again bring, on a global level, a series of disastrous economic consequences, whose repercussions could be very hard for our country.
While the price of Brent crude is around 37/38 dollars this week, the 2021 finance bill, currently on the desk of the Finance Committee of the National People’s Congress (APN), expects the reference price of a barrel of oil to stabilize at 40 dollars for the period 2021-2023, with the stability of market prices but with a deviation of five (+5) dollars per barrel from the price of a barrel expected to be 45 dollars during the same period.
According to the same forecasts, oil revenues are expected to reach, during the period 2021-2023, $23.21 billion in 2021, $28.68 billion in 2022 and $26.45 billion in 2023, based on 45 dollars/barrel as the market price for a barrel of Sahara Blend crude oil during the projection period.
The PLF-2021 also forecasts a decline in the exchange rate of the Algerian dinar (DA) against the US dollar (USD), where the annual average should reach 142.20 DA/USD in 2021, 149.31 DA/USD in 2022 and 156.78 DA/USD in 2023.
The bad news on the oil front is piling up as the national oil company Sonatrach has already recorded losses of 10 billion dollars, during the first 9 months of the current year, in the wake of the global health pandemic. Sonatrach’s exports have thus fallen by 41%, until the end of September, compared to the same period in 2019.
Tight margin of maneuver for Opep
In this difficult oil context, the mitigation of the harmful economic effects can only come from Opep+. The latter will probably be obliged to postpone the planned reduction of its reductions, in view of the deterioration of the market situation, but things will not be so easy for the alliance, which has been trying to regulate the market for months.
While its meeting is scheduled for the end of November and speculation is running high that production restrictions will inevitably be renewed as early as January 2021, in a context of sluggish demand, there are indications of a possible slump on the part of some exporters.
The current cuts are indeed weighing heavily on the economies of the producing countries, which, according to a Reuters report, has given rise in recent days to rumors that three of OPEC’s largest producers may disagree about extending the current cuts to next year.
Iraq, the United Arab Emirates (UAE) and Kuwait – OPEC’s largest producers behind Saudi Arabia – would not be particularly inclined to support a postponement of the 7.7 million barrels per day (bpd) cuts, as the cuts are too large for their economies and restrictive of their budget revenues.
OPEC sources told Reuters that the two leaders of the OPEC+ pact, Saudi Arabia and Russia, would be in favor of postponing the 7.7 million bpd cuts to 2021, rather than cutting them by 2 million bpd as planned in current OPEC+ production.
OPEC sources told Reuters that the two leaders of the OPEC+ pact, Saudi Arabia and Russia, would be in favor of deferring the 7.7 million b/d cuts to 2021, instead of the 2 million b/d cut in current OPEC+ production as planned.
OPEC and its Russian-led partners are likely to consider « many demand problems » before reducing their cuts, a senior leader of Saudi Aramco said this week, while Russian President Vladimir Putin said last week that he did not rule out OPEC+ delaying the easing of cuts, or even making further cuts.
However, the United Arab Emirates and Kuwait – which have generally followed Saudi Arabia’s lead in terms of agreements and compliance with reductions – and Iraq would not be willing to support a renewal of deep cuts.
« Countries are being stifled by these cuts, it’s very difficult to continue them next year as well, » an OPEC source told Reuters.
Oil ends October with bleak outlook
On the black gold price front, futures fell nearly 11% this month in New York, and are close to the lowest since the end of May in London. Meanwhile, the return of Libyan supplies has added to concerns of a crude oil glut.
« U.S. crude oil futures are expected to experience their worst month since March, » noted Bloomberg, noting that growing nervousness about supplies is reflected in the structure of the oil market, whose recent developments indicate growing fears of a glut.
UK road fuel sales slid for a fifth week to their lowest level since July.
Most European airlines reduced regional capacity for November and December, while rising contamination in the United States could thwart plans to increase capacity through the end of the year, according to Bloomberg Intelligence analysts George Ferguson and François Duflot.
« It’s all about Covid-19 now and its impact on consumption, » said Jeffrey Halley, senior market analyst at Oanda Asia Pacific. « There is an awareness that Covid-19 is well on its way to the second wave in Europe, that the recovery will not be as linear as the market has predicted. There will certainly be an impact on consumption in Europe as we enter the winter season ».
According to data from Bloomberg, US air traffic was down 2.9% year-on-year, a 63% year-on-year drop. European air traffic is stable, but could see further declines due to health restrictions.
Next week’s U.S. elections are also likely to affect prices and create more volatility ahead of an OPEC+ meeting in late November, when members are expected to decide to delay the planned easing of production cuts.
The head of Saudi Aramco’s commercial arm said demand may be insufficient to absorb more OPEC+ crude.
« The market could fall further next week, » said Halley d’Oanda. « Any action to support oil must come from the supply side of OPEC+. »
Yesterday in early trading, West Texas Intermediate for December delivery fell 0.7% to $35.92 a barrel on the New York Mercantile Exchange, after losing 3.3% Thursday.
Brent crude for December settlement fell 35 cents to $37.30 on the ICE Futures Europe Exchange, after falling 3.8% in the previous session. The contract is down about 9% this month.