OVERVIEW

OPEC net oil export revenues for 2005 (see table) are now estimated at around $473 billion, up 43 percent from 2004 levels. For 2006 and 2007, OPEC net oil export revenues are forecast at $522 billion and $495 billion, respectively. Several major world events during 2004 and 2005 affected world oil markets and contributed to the spike in OPEC oil export revenues. These included: 1) low OECD oil inventories held in commercial storage, particularly in terms of “days forward consumption;” 2) uncertainty about the flow of Iraqi oil exports in the face of the high level of turmoil within that country; 3) damage inflicted on U.S. Gulf Coast and offshore oil installations last fall following a series of destructive hurricanes (Ivan, Katrina, Rita, etc.); 4) an unexpectedly strong surge in world oil demand, particularly in China; and 5) capacity constraints (production, refining, and transportation).

OPEC net oil export revenues in real (inflation adjusted) terms are currently running nearly triple the average annual revenues seen during the 1990s, but remain below the peaks reached in 1980 and 1981. The boom-bust cycle of oil revenues seen over the past 30 years (the 1973 and 1979 oil price shocks; the 1985/86 oil price collapse; the 1990/91 Iraq crisis and oil price spike; the 1997/98 Asian economic crisis and oil price collapse; the current uncertainty regarding terrorist threats, Middle East instability, surging oil demand, etc.), makes long-term budgetary planning a challenge in many OPEC countries, and also complicates efforts to deal with balance of payments deficits, accumulated debt, budget problems, economic reform and rapid population growth.

Since their collapse to under $10 per barrel in December 1998, the lowest oil price since prior to the Arab Oil Embargo of 1973, oil prices have rebounded strongly, to over $60 per barrel for West Texas Intermediate as of early January 2006. The OPEC "basket" price (a weighted average of Algeria's Saharan Blend, Indonesia's Minas, Nigeria's Bonny Light, Saudi Arabia's Arabian Light, Dubai's Fateh, Venezuela's Tia Juana, and Mexico's Isthmus), for instance, averaged about $51 per barrel during 2005, more than four times its 1998 level. For 2006 and 2007, EIA forecasts the OPEC basket average around $55.25 and $52.50 per barrel, respectively. (It is worth noting that the relationship of the OPEC basket to other world oil prices has shifted somewhat recently; this is believed to be the result of a number of factors, including world refinery constraints and a reduction in OPEC spare production capacity for the light, sweet crudes that constitute the "marginal demand barrel" worldwide. Also, please note that OPEC recently redefined the basket, which is now heavier and more "sour" -- higher sulfur -- than the previous basket.)

World oil price spikes and crashes are, in many respects, cyclical, as they affect oil supply and demand. For example, the oil price collapse of 1998 led to a large number of well closures (as well as a reduction in oil exploration and production) in non-OPEC countries, including the United States, where thousands of so-called "stripper" wells were shut down in Oklahoma and Texas. The price collapse also tended to stimulate world oil demand. Higher oil prices since 1999, on the other hand, have tended to encourage an upsurge in oil sector drilling activity and a reduction in oil demand growth.

All else being equal, increased oil prices tend to result in improvements in OPEC countries' economic situations, budgets, and trade balances. Higher oil export revenues also tend to lessen pressures for economic reforms, and make it easier for OPEC countries to increase their spending. However, the impact of higher oil prices is tempered by memories of past price collapses (i.e., 1998), as well as a general understanding that oil prices can be highly volatile.  Still, there is little doubt that pressures to make difficult political choices (like cutting popular state subsidies for food and fuel) tend to be lower during relatively prosperous times than in more difficult ones.

Rapidly fluctuating oil export revenues over the past few years also have affected non-OPEC countries, such as Russia and Mexico, significantly. The economic situation in Russia, for instance, has improved greatly over the past few years, in large part as a result of a rebound in the country's oil and gas export revenues since 1998. Russia earned an estimated $122 billion in net oil export revenues during 2005, up from just $39 billion in 2001. EIA estimates that Russian inflation-adjusted net oil export revenues during 2005 were the highest since the mid-1980s, prior to the breakup of the Soviet Union, when production was much higher than it is today.

In real terms (constant $2005), OPEC revenues peaked in 1980, at $572 billion (see graph). OPEC's worst revenue year in constant dollar terms since the early 1970s ($80 billion in 1971) was 1998, when revenues fell to only $123 billion, slightly below the previous low revenue year of 1988 ($121 billion) following the oil price collapse of late 1985/early 1986. For the 1990s as a whole (1991-2000), OPEC net oil export revenues (in constant $2005) were $1.7 trillion, compared to $2.3 trillion in the 1980s, and $3.0 trillion in the 1970s. Thus, total OPEC oil export revenues in real terms during the 1990s were less than 60 percent of revenues in the 1970s. So far, OPEC oil export revenues (in constant $2005) for 2001-2005 are averaging $291 billion per year, about 70 percent above the annual average during the 1990s.

Individual OPEC members' shares of total oil export revenues have fluctuated over the past three decades, but several trends are apparent (see graph). First, Saudi Arabia consistently has earned more oil export revenues than any other single member of OPEC, with the Saudi share ranging from below around 16 percent in 1971 to as high as 46 percent in 1981, and 32 percent in 2005. Second, Iran's revenue share fell after the 1978/79 Iranian Revolution (followed soon thereafter by the Iran-Iraq War for much of the 1980s), and has not recovered since. Today, Iran accounts for about 10 percent of total OPEC net oil export revenues, down from 17 percent-19 percent in the 1970s. Third, Iraq's oil export revenue share has fluctuated sharply, from a high of around 14 percent in the late 1980s, to basically 0 percent for several years following its August 1990 invasion of Kuwait (and the subsequent U.N. oil embargo, which continued until May 2003). Iraqi oil export revenues increased after 1996 under the U.N. "oil-for-food" deal, which permitted Iraqi oil exports to buy food and medicine, for war reparations, and for other U.N.-authorized purposes. For 2005, Iraq's share of total OPEC oil revenues was about 5 percent, which EIA expects to remain roughly flat during 2006 and 2007.

In inflation adjusted terms, OPEC per capita oil export revenues are far below the peaks reached in the late 1970s/early 1980s. For OPEC as a whole, per capita oil export revenues (in constant $2005) are estimated to have reached $844 in 2005, up 39 percent from 2004, but still less than half the $1,821 per capita revenues achieved in 1980. The decline in per capita oil export revenues has had significant implications for OPEC oil price preferences and policies, especially given that many OPEC countries, despite their seeming oil wealth, are paying off large debt burdens (accumulated in part as a result of low oil prices for most of the period from the mid 1980s through the late 1990s, combined with economic mismanagement, war, corruption, etc.).

As with OPEC nations, major non-OPEC producers also are affected by fluctuating world oil prices. Russian oil export revenues, for instance, have surged sharply after reaching a low point in 1998, with tremendous economic and political consequences. This has resulted from increases in both oil prices and production since that time. Russian net oil export revenues surged by 44 percent in 2005 over 2004, to $122 billion (in constant $2005). Russia's projected oil export revenues for 2006, at $133 billion (in constant $2005), would be more than seven times greater than their low point in 1998.  

According to statistics from EIA's Monthly Energy Review, the oil price collapse of late 1997 and 1998 cut U.S. net oil import costs during 1998 by around $20 billion (to $44 billion) compared to the previous two years.  Increased oil prices since then have increased U.S. net oil import costs: to $122 billion during 2003 and $166 billion in 2004. For the first 10 months of 2005, U.S. net oil imports reached $189 billion, compared to $134 billion during the first 10 months of 2004. Oil currently accounts for about 30 percent of the total U.S. merchandise trade deficit.