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OPEC heads for windfall on record oil price

Organisation is on course to earn $894 billion from exports, bringing much-needed funds to Middle East regimes seeking to counter popular unrest via social spending

Reuters, Saturday 10 Dec 2011
Police officers stand guard on the rooftop of Vienna's OPEC headquarters before the start of meeting in February (Photo: Reuters)

OPEC is heading for near-record oil export revenue this year thanks to over US$100-a-barrel oil, and many members will be hoping prices stay there as they tackle challenges from higher social spending to oilfield decline.

In 2011, the Organization of the Petroleum Exporting Countries is on course to earn US$894 billion from oil exports, up 38 per cent from 2010 and close to the highest ever, according to the Centre for Global Energy Studies.

Oil-price needs in OPEC member-countries have risen sharply, analysts say, following announcements of increased social spending on their growing populations as they seek to counter unrest in the Middle East and North Africa.

"The sharp increase in spending following the Arab Spring has prompted a step-change in oil revenues needed if Middle Eastern oil producers are to balance their budgets," said Lawrence Eagles, global head of oil research at JP Morgan.

OPEC, at odds over supply policy since June, looks set at its meeting on Wednesday in Vienna to agree a new production target that legitimises current output around 30 million barrels a day.

While a period of OPEC disunity in the late 1990s helped send oil prices into a nosedive, the average this year is poised to be the highest ever due to the loss of Libya's supplies for much of the year, other supply outages and rising world demand.

Brent crude for the year to date is above $110 a barrel, up from the previous record near $100 in 2008.

Based on CGES forecasts, the only year in which OPEC's oil revenue was higher was 2008 - the year oil hit its all-time high of $147 a barrel and before Indonesia left at the end of that year, taking a small share of OPEC revenues with it.

"It is very close to the record highs," said Leo Drollas, director and chief economist of the London-based CGES. "Basically, it is all about the price."

Saudi Arabia, Kuwait, and the United Arab Emirates boosted their oil output this year to compensate for the loss of supplies in Libya, allowing them to benefit from selling more barrels at higher prices.

The biggest loser of revenue is Libya, whose oil exports income the CGES expects to fall to just $9 billion as a result of the uprising against Muammar Gadaffi's rule and civil war, which virtually shut down Libya's oil industry for months.

While Gulf OPEC delegates have said they will curb output to make way for a recovery in Libyan supplies when it happens, there are no signs of drastic supply cuts yet.

Producers' oil-price needs are rising anyway, even before the Arab Spring, as they refine more of their oil at home and need to keep up investment in their oilfields to maintain production rates.

"Growing domestic consumption, social spending and mature field decline, and with Libya and Iraq lifting production in 2012, we think producers will want to keep prices above $100 a barrel, basis Brent, to keep revenues above the budget break-even," Eagles at JP Morgan said.

OPEC's leading exporter, Saudi Arabia, used to favour an oil price of $70-$80 a barrel. It said at OPEC's last meeting in June that range belonged to the past, without saying what its new preferred price was.

Other OPEC members such as Iran and Venzuela, with a relatively limited ability to boost their oil exports in the short term, have said a fair price for oil is $100 or more.

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