OPEC Revenue Cut in Half

By Keith Kohl | Friday, December 19th, 2014

Oil Stimulus Money

AAA also said that 98.6 million Americans will travel 50 miles or more during the holiday season, and most of them will be driving.

For those who are flying, the cost of jet fuel is at record lows, too, offering a huge stimulus to airlines whose biggest expense is fuel.

Check out how well Southwest Airlines (NYSE: LUV) has done while oil and gas were getting crushed…

LuvOil

Of course, this immediate stimulus for airlines may not be passed onto customers, but shareholders have already seen the boon of low oil prices.

That being said, this hasn’t been a positive stimulus for everybody…

OPEC Loses Half of its Revenue

You and I both know that oil and other commodities have been hit hard by the oil glut and low prices.

But what you may not know — given all of the misinformation out there — is that OPEC is in trouble, too.

Many blogs and articles written about oil since the November 27th OPEC meeting have claimed that Saudi Arabia and Kuwait are orchestrating some ingenious chess match to save market share…

When really, they’re fighting to stay afloat by tossing their heavier friends off the ship.

Take a look at these two graphs from the EIA.

This first one shows how far and fast OPEC’s own revenue is declining…

OPECREV

The EIA projects revenue for 2014 will be around $700 billion, an 8% drop from 2013. That doesn’t sound that bad…

But at current prices, the cartel stands to lose nearly $400 billion in annual revenue by 2015. That’s a 50% drop from 2013 levels that could seriously threaten some of the OPEC members that rely on revenue to fund social programs.

The second chart shows the countries being tossed off of the OPEC ship…

Opecshare

Saudi Arabia, Kuwait, and Iraq hold half of OPEC’s revenue hostage, and when countries like Venezuela and Angola can’t keep up with cheap oil prices, it’s only a matter of time before the cartel has another choice to make….

Either cut production or watch its partners sink.

So What’s Going to Happen?

All of this about OPEC losing half of its revenue in two years and Russia’s ruble crashing on low oil prices doesn’t mean we know what will happen with oil.

As much as we’d like to, it’s impossible to predict how the market will move.

But all common sense points to higher oil prices by the end of next June. And if that’s the case, we can safely assume that most oil and gas stocks are a great bargain right now.

This is especially true in North America, where fears of a shale bust have investors fleeing fracking stocks with reckless abandon.

But selling and running away when these stocks are trading at their lowest level in five years is absurd. If you would’ve bought stocks as cheap as they were in 2009 and held onto them, you would’ve made a bundle.

So why are people fleeing now? Are they in a panic?

It seems so. I mean, oil isn’t going away no matter how low prices go. Companies will always be there to drill for it so long as there’s demand.

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Keith Kohl

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December 20, 2014 | 1 Comment »

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  1. I cannot believe that there is nobody who understands the real reason that Saudi Arabia is doing this:

    This is their way to impose sanctions on Iran, since nobody else will. Period. Everything else is secondary, although I am sure that they hope the pressure it puts on Russia will cause him to back off on their support for Assad.

    This is not about stopping fracking, since as soon as it stopped, oil prices would go right back up to where it would be profitable for them to produce.