Strategy Note /

OPEC+ unchanged with oil price near fiscal breakeven

  • OPEC+ stuck to its output increase plan but with the proviso that it could immediately react to an Omicron hit to demand

  • Relief for importers (and US President Biden) but OPEC+ decisions have moved from every 2 months, to monthly, to daily

  • Despite 20% drop from end-October peak, current oil price (cUS$70) is near the fiscal breakeven of Russia and Saudi

OPEC+ unchanged with oil price near fiscal breakeven
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
3 December 2021
Published byTellimer Research

OPEC+ stuck to its output increase plan on 2 December but with the proviso that it could immediately react to a significant hit to demand from the Omicron Covid variant.

An oil price of cUS$70 (Brent), close to the year-to-date average, approximately balances the fiscal budgets of the largest oil exporters, particularly Russia and Saudi Arabia.

OPEC+ output decisions have effectively moved from being made at a meeting every two months, to at a monthly meeting, to on a daily basis. The credible threat of a quick change in output policy may place a floor on oil prices unless data on Omicron-driven hospitalisation and fatalities or the effectiveness of existing vaccines against Omicron proves far worse than initial indications.

Current oil price is near fiscal breakeven of main exporters

Importer pain not compounded

As it stands, the OPEC+ decision does not compound the pain for net fuel importers in the emerging markets, particularly those also under pressure from high imported food costs. The average oil price is c60% higher in 2021 so far compared with 2020.

The impact of a 60% higher average oil price in 2021 on EM

A nod to Biden

As it stands, the OPEC+ decision also suits US President Biden, who needs Saudi Arabia and Russia to continue leading the expansion of output, given the political fallout from inflationary pressures in the run up to mid-term elections in November 2022, more than he needs them to respect the human rights terms he couches his foreign policy in or, in the case of Russia, to bend to his wishes on Ukraine or Belarus.

Oil & gas exporter equity valuation

Oil & gas exporter equities: Russia, Saudi similarly valued in large EM, Colombia, Nigeria, and Qatar cheapest in small EM

Related reading

Oil price exposure in emerging markets, September 2021

OPEC+ reset, July 2021

International Energy Agency calls time on Oil, May 2021

Oil price rally turns GCC fiscal balances positive for now, reform still a must, March 2021

Saudi's 'Vision 2030' five years in, April 2021