Saudi Arabia is Killing OPEC
The Saudi Spring is Coming
Does Saudi Arabia really need OPEC anymore?
It seems unlikely at this point.
The country already accounts for a monumental one-third of the organization's oil production, which has made it the undeniable leader of the group.
Back in 2014, it was Saudi Arabia who pushed production up and pressured prices down.
Supposedly, it was to keep OPEC from losing its market to the U.S. shale boom.
But honestly, it was more of a plan to save Saudi Arabia from losing its own market share.
Meanwhile, other OPEC members have been left in the dust...
Is OPEC Dead?
One recent headline floating around asked if OPEC was dead or just in a coma.
It's neither, actually.
It's just breaking apart, one country at a time.
Venezuela is a perfect example. It's got the largest oil reserves of any country and is one of the world's biggest producers.
Oil exports account for a full 95% of Venezuela's export revenues and about 50% of its total GDP!
When oil was $114 per barrel, the country was in good shape.
But with crude prices trying to find support around $50 per barrel, there's little for Venezuelans to be happy about.
According to the World Bank, the country was in a deficit of about 20% of its GDP at the end of 2015, which has pushed inflation through the roof.
This is clearly causing potentially catastrophic social problems... citizens wait in unfathomably long lines, sometimes skipping entire days of work or school just to get basic necessities from stores.
Without its oil revenue, Venezuela is on the verge of collapse.
And to stem the bleeding, the government has been cutting oil subsidies where it can — but it's not nearly enough.
And these economic woes are nothing compared to Nigeria's political ones.
Not only has Nigeria been dealing with a large militant group called MEND — a group that specifically targets the country's oil infrastructure — but what's left of Nigeria's declining output is now worth just a fraction of its peak price.
For 2016, the country is expected to have a budget deficit of around $11 billion. It has had to reduce subsidies to keep from going under entirely.
And that's not even the biggest of OPEC's family issues...
The Trouble Child
In stark contrast to these two countries, Iran is planning to boost its export capacity as much as it possibly can.
Late last year, the country declared that it would be ramping up oil production and exports to pre-sanction levels this year, supply glut or no.
You can see how this could put a stopper in Saudi Arabia's plans.
The recent string of rumored and failed meetings between Saudi Arabia and other big oil companies just goes to show how hard it can be to get even seemingly willing countries to cooperate in repairing the battered oil market.
Iran adamantly refuses to join any such agreement.
It's a little ironic when you realize that Iran is just doing what Saudi Arabia did in the first place: protecting and trying to expand its market share.
Sure, it may seem fruitless right now; after all, how could a country still recovering from years of international sanctions overtake the powerful House of Saud?
But the fact is, the House of Saud is crumbling in on itself as we speak...
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Spring is Coming
Saudi Arabia has been able to survive the rough waters thus far by depleting its own treasury to make up for the loss in oil revenue.
It has also cut oil subsidies and even recently decided that some diversification away from the commodity is in order.
But some — myself included — doubt that this will be enough to save the country from backlash like that seen in Venezuela and Nigeria. It may be too late to save the House of Saud from itself.
There is only so much the country can lose before its people rebel.
Yet another meeting between the members of OPEC is planned for June 2, and no one expects anything productive to happen. But I wouldn't be writing about this if there weren't an upside for investors to take advantage of.
When Saudi Arabia falls, there will be other producers there to take its place on the market. And you'll want to be aware of who they are in advance.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
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