The latest report of the World Bank anticipated an increase in the rate of growth of Algeria’s economy but it also reckons that it would still be drawn back by its large public expenditure through notably its newly adopted unconventional financing. It should rather opt for a transitional mean of development, with sustainable growth to be driven by competitive companies. For several decades, the Algerian economy has been dependent on hydrocarbons export revenues and all its yearly Finance Acts were based on the oil price evolution. With the fall of the prices of oil in mid-2014, trade balance and the balance of payments begun experiencing strong tensions. Algeria whose OPEC quota is 1.2 million of barrels per day to which it is necessary to subtract the 50,000 barrels per the agreed OPEC / non-OPEC production reduction must be especially attentive because the gas component supply contracts, that represent more than 33% of SONATRACH’s earnings would expire between 2018 and 2019. Meanwhile, there is a massive entry of new producers into the oil world market and the price as at January 10th, 2018 is $2.92 per MBTU, more than 30% compared to the previous year. . The price of Brent was quoted on the morning of January 11th, 2018 at $69.45 and at $63.92 for the WIT. And it looks as if the price would stick to that higher band of $60 for the foreseeable future. The Ten reasons for oil prices to be higher than $60 per barrel are enumerated below.
– The First reason, Is that the World’s northern hemisphere is going through winter.
– The Second reason, as rightly pointed out in the January 2018 report of the World Bank, it is a resumption of growth for 2018 that could turn to stagnation for 2019 if no reforms were undertaken. The global economy in Europe, the USA and particularly China and India, will go through changes in the way of growth. In the case of Algeria, it is the fact that the Government plans to revive public expenditure in particular in the building – infrastructures that made the WB revised the growth rate, thus a cyclical action based on oil exports revenues and the mastery or not of the unconventional financing.
– The Third reason, is the respect of the OPEC members quotas as agreed upon in December 2016 in Vienna with prospects of renewal of the agreement, notably of Saudi Arabia.
– The Fourth, is The non-OPEC agreement between Saudi Arabia and Russia, these two countries producing more than 10 million barrel per day.
– The Fifth is the political situation in Saudi Arabia where we have yet to see clear in the action of the Crown Prince in his fight against corruption, with the fear of internal political tensions
– The Sixth is the sale of some of ARAMCO, Saudi Arabia’s state oil company, in 2018; this IPO project, which could concern 5% of its capital and which could be the biggest IPO in history and bring back $100 billion to the kingdom.
– The Seventh is the omnipresent tension in Kurdistan; this area producing about 500,000 barrels per day together with the decline in Venezuelan production, tensions in Libya and Nigeria and the unpredictable speeches of the American president with regard to the agreement with Iran on its nuclear though mitigated by the Europeans.
– The Eighth is the current tensions in Iran as well as between Iran and Saudi Arabia that could lead to disagreement in OPEC’s leadership.
– The Ninth is the weakness of the Dollar in relation to the Euro.
– The Tenth is the declining U.S. stocks, a relative decline in US production, with a recovery announced during the first half 2018.
In the short term, the above nine reasons can affect the price of oil either way, with however some factors being more predominant than others. The minister of energy of Saudi Arabia has Indicated that the desirable price should not exceed $60 to avoid a massive entry of shale US oil and gas whose marginal deposits, that are the most numerous, become profitable, thus flooding the market. The IEA has just indicated, that if in 2018 the price held at more than $60, the American production would exceed that of Saudi Arabia for the first time. For the IMF, the barrel should be best at an annual average of $56. As far as Algeria is concerned, an increase of one Dollar would bring in an annual average of between $500/600 million additional and at $60 it would be up to $6 billion/year.
As noted by Gulf Business Oil prices hit multi-year highs on Thursday despite warnings that a 13 per cent rally since early December was close to running its course. Brent crude futures rose $0.27 to $69.47 a barrel at 10:39am GMT, its highest since an intra-day spike in May 2015. US West Texas Intermediate (WTI) crude futures were at $63.94, up $0.37 to their highest since December 2014.