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The continuing fall in oil prices, which has seen crude oil fall so sharply since the peak of October 2002 in 52 weeks, which destroyed $ 1 trillion in energy stocks, will cut deeply into the pockets of major producers like Saudi Arabia, Russia, Nigeria and Canada. Angola. As the world moves towards an "unprecedented period of uncertainty" in oil markets, OPEC members will not be the only ones to suffer. Even countries less naturally exposed to fluctuations in oil rents, such as Malaysia and Canada, are more vulnerable than usual to the current oil price crisis, due to weak policies.
Record of losses
Just as early as the beginning of October, Brent's barrel was trading at around $ 87 a barrel, while the forecast was $ 100 a barrel. Since then, the commodity has suffered a series of unprecedented losses. Affected by both an overabundance of supply and a decline in demand, oil is now valued at almost half of what it was two months ago, after recording its strongest drop in one day in three years.
The projected reduction in supplies precipitated by US sanctions on Iranian oil has not materialized, thanks to the unexpected administration of the Trump government which granted exemptions to eight countries, including major importers, China and India. More worryingly, this abundance of supply could account for only about 15% of the current price decline, the rest being caused by depressed demand due to sluggish economies.
OPEC under pressure
While the industry holds its breath hoping that December 6th The stabilization of crude oil prices will result in sluggish demand far more worrying than excessive supply, as the OPEC countries do not have direct control over it. Indeed, it is estimated that OPEC has been responsible for only 15% of the global increase in oil production between October 2017 and October 2018, while many of its larger members are struggling to break even: Austria, head of a cartel, needs oil prices to average $ 70 just to balance the books. The smaller OPEC countries are even more exposed: Nigeria and Angola, for example, depend on crude for over 80% of their exports.
Other emerging markets under threat
It is not surprising that emerging markets whose GDP depends on oil will suffer bitterly with the drop in crude prices. Less analyzed, but just as troubling, are countries that have been left vulnerable to an oil collapse by their own political choices rather than an abundance of oil resources. Related: A legendary oil trader is waiting for crude prices to rebound
For example, after years of weaning from oil dependency, Malaysia is now threatened by falling oil prices, thanks to the risky political decisions of its Prime Minister, Mahathir Mohamad. Since the 93-year-old former strongman regained the post of prime minister in May, Kuala Lumpur has injected $ 3 billion in foreign investment in fear of pursuing the same controversial economic policies that characterized his first term as prime minister. Minister from 1981 to 2003.
Mahathir did not allay these concerns by removing the Goods and Services Tax (GST), which accounted for about 20% of state revenue. Malaysian finance officials have sounded the alarm over the removal of the GST, pointing out that the previous government introduced the tax to reduce the country 's dependence on oil and to support the government. Malaysian economy in case of further fall in the price of oil.
Mahathir's expansionary budget for 2019 had relied on oil rents to fill the gap left by the abolition of the GST. This plan unfortunately forced the oil and gas giant Petronas to pay an extraordinary dividend – a proposal that pushed Moody's to degrade Petronas' outlook – and assumed a crude oil price of $ 72 a barrel – a figure less than months after the publication of the budget, seems dangerously optimistic.
Former Malaysian Prime Minister Najib Razak praised the budget, noting that his administration had planned its finances around a crude oil price of $ 18 lower than the global rate for caution: "if the conditions are met," he said. improve, we will have a bonus. If it gets worse, we would have already made some preparations. " The administration of Mahathir may regret not having made such preparations.
Canada's catastrophic infrastructure problems
The beleaguered Malaysian prime minister is not the only leader whose ill-conceived policies have left his country unnecessarily exposed to the vagaries of the oil market. Strangulation bottlenecks have been forming in Alberta for years, as the Athabasca oil sands extract more oil than can be transported by existing pipelines, a problem that the Liberal government of Justin Trudeau does not have. has not resolved.
Trudeau made a risky offer to cancel the Northern Gateway Pipeline for the Trans Mountain Project, which would have tripled the amount of petroleum products exported from Alberta. The Prime Minister's gamble turned against a disaster in August, when the Federal Court of Appeal of Canada blocked construction on Trans Mountain. The Keystone XL and Energy East projects were also set aside – the latter probably for political reasons rather than for profitability – Trudeau was faced with growing criticism and an increasingly serious oil crisis in the province. richer Canada. Related: A unique solar game
Ottawa's apparent inability to see a pipeline project come to an end means Canada has a glut of crude oil with no where to ship it, forcing Canadian producers to sell oil at a sharply reduced price. This is a particularly serious problem when world prices are already falling: Canadian oil has recently fallen to only $ 13.46 a barrel, the lowest price in the world.
The gap between Canadian and global oil prices means that Alberta loses $ 100 million a day, a loss that not only hinders future investment in the industry, but also jeopardizes the nation's economy whole. As part of Canada's revenue-sharing system, Ottawa has about $ 22 billion in oil-rich Alberta for distribution to less affluent provinces.
Stormy waters coming soon
Canadian coffers are bleeding at an alarming rate as world oil prices fall, but the situation does not end. In the United States, shale production is expected to reach record levels next month and continue to grow in the 2020s – even if America is constrained by its own pipeline capacity problems – the current glut of supply could lower oil prices in the near future.
The remarkable recovery in oil prices since the last crash of 2016 has allowed oil producers, both inside and outside OPEC, to breathe a sigh of relief. . Unfortunately, this has also given countries like Malaysia and Canada the space to implement policies that have left them unnecessarily vulnerable to the next downward shift in crude oil.
By Richard Talley for Oilprice.com
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