Algeria breaking ranks to align with OPEC oil price hawks

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algeria sahara oil field
An oil field in Algeria's Sahara Desert. Photo - AlgeriaChannel.net

Algeria is emerging as an important voice on the OPEC forum as it is lending support to other countries demanding for higher oil prices. The North African nation is vehemently opposing Saudi Arabia’s moves to lower oil prices by pumping more oil.

Algerian Energy and Mines Minister Youcef Yousfi said on Wednesday the Organisation of the Petroleum Exporting Countries (OPEC) faces a real risk due to a slide in crude oil prices caused by the group exceeding its production ceiling, a clear suggestion that the country is in favour of a production cut.

Algeria is yesterday’s Saudi Arabia. However, the county cannot afford to be in the biggest Arab economy’s shoes as its oil output is now falling after a decade of rapid increase in oil production. Moreover, the North African nation badly needs higher oil prices as its suffers from economic crisis.

Many analysts blame the successive governments in Algiers during the last decade which raised its output steadily – often violating the cartel’s self-imposed production limits.

Back in 2000, Algeria pumped 800,000 barrels a day. State-owned Sonatrach and other foreign companies poured in large investments that boosted oil output to 1.4m barrels per day in early 2008. International Energy Agency estimates suggest production has fallen back to 1.1m bpd since then.

“Bureaucratic delays within Sonatrach appear to have become entrenched as new management grapples with institutional inertia, which is further delaying long-planned expansion projects,” the IEA said in a recent report.

Algeria made desperate changes to provisions of its contracts with international oil companies, which put off many of the global oil giants. The country’s refusal to roll back the changes meant its last three rounds of exploration contracts failed to attract considerable interest from international oil exploration companies. The IEA believes that Algeria’s maximum oil production capacity would continue to decline until at least 2016.

Algeria enjoyed an unprecedented windfall during the last decade when refiners lined up for its Saharan Blend, the top grade export oil whose low sulphur content made it attractive to produce environmentally friendly fuels such as gasoline. Coffers in Algiers filled with millions of dollars when it sold its premium blend as high as $3 a barrel over Brent in 2008.

However, prices of the Saharan Blend declined as US increased shale oil production, now selling at $2.10 a barrel below Brent. It is unlikely to bounce back again due to a big rise in supplies of crude oil of similar quality benefitting from the closure of refiners in the Atlantic.

The International Monetary Fund has been warning Algeria on the heavy rise in public spending, insisting it could seriously hamper the country’s financial outlook. The Paris-based global monetary control agency believes that oil prices hovering around $100 a barrel would help balance the budget – excluding salary back payments.

This has prompted Algeria to break away from its old allies like Saudi Arabia, Kuwait and the United Arab Emirates, and align with price-hawks like Venezuela and Iran.

Last year, Algeria registered the second biggest budgetary deficit among oil producers in the Middle East and North Africa (MENA) region with a shortfall equal to 3.6% of its GDP, just above Yemen’s deficit of 4.4% of its GDP.

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