The Low Oil Price Guts Another OPEC Oil Exporter

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From the Archives : Originally published September 21st, 2017
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Category : Crisis Watch

By Steve St. Angelo

The low oil price is negatively impacting another OPEC oil exporter as it continues to liquidate its foreign exchange reserves.  Algeria, like Saudi Arabia, has seen its international reserves plummet by more than 40% as the oil price fell in half since 2014.

Algeria joined OPEC back in 1969 and is currently producing 1.1 million barrels of oil per day (mbd).  While Algeria is not one of the larger OPEC members, it still exports roughly 670,000 barrels of oil per day.  At $50 a barrel, the country receives $33.5 million a day in oil revenues.  However, Algeria’s oil revenues have taken a nose-dive as the oil price declined from over $100 in 2014 to below $50 currently:

As we can see in the chart above, Algeria’s net oil export revenues fell from $61 billion in 2012 to $19 billion last year.  Thus, Algeria’s net oil export revenues fell nearly 70% in the past four years.  This has negatively impacted the country’s financial balance sheet.  To make up for declining oil revenues, Algeria has liquidated $70 billion of its international reserves since the end of 2014:

Unfortunately, the liquidation of Algeria’s foreign exchange reserves hasn’t been enough to stem the tide of its falling oil revenues.  According to the article on Zerohedge, Algeria Officially Launches Helicopter Money Amid Sliding Oil Revenue, Budget Crisis:

On Sunday, Algeria’s prime minister unveiled a plan to plug the country’s budget deficit as the the OPEC member state looks to offset lower oil revenue by directly borrowing from the central bank, while avoiding international debt markets. In other words, direct monetization of debt, which bypasses commercial banks as a monetary intermediate, and is better known as “helicopter money.”

According to Bloomberg, the five-year plan presented by Prime Minister Ahmed Ouyahia aims to balance the budget by 2022, and reverse a deficit that ballooned with the plunge in global crude prices, which also cut foreign reserves by nearly half.

“If we turn to external debt, as the IMF suggests, we will need to borrow $20 billion a year to repay the deficit and within four years we will be unable to repay the debt,” Ouyahia said. “This is what made the government look at non-traditional financing.”

Algeria’s Prime Minister has decided to print money directly from its central bank rather than access debt via the international market.  Thus, Algeria is now embarking on the policy of “Helicopter Money dropping” to offset the massive decline in its oil revenues.

I knew more OPEC oil exporting countries would succumb to alternative monetary policies as the low oil price is gutting the entire global oil industry.  Furthermore, the article linked above stated the following:

Incidentally, while other OPEC nations have been rumored to consider such a currency devaluation “nuclear option” in light of oil prices that are far below “budgetary breakevens” for most OPEC nations, it was not until today that it was finally implemented. And now that that the first country has succumbed, the question is who is next.

So, Algeria was the first OPEC member to select the “nuclear option” of outright unsterilized monetary printing.  This could cause serious inflation in the Algerian economy.  If the oil price does not head back up to $70-$80, we will likely see more OPEC members elect to implement additional “monetary options” besides liquidating international reserves to fortify its balance sheet.

The U.S. and global oil industry is in serious trouble… but we have only begun to see just how bad things will get over the next few years.

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Independent researcher Steve St. Angelo (SRSrocco) researches areas of the gold and silver market that, curiously, the majority of the precious metal analyst community have left unexplored. These areas include how energy and the falling EROI – Energy Returned On Invested – stand to impact the mining industry, precious metals, paper assets, and the overall economy.
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