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Page added on February 11, 2015
Oil Revenue: Is it Really Lost if You Never Earned it?
There have been lots of recent headlines about how much money the governments of oil exporting nations will lose as a result of declining oil prices. But these countries will really just earn less money than they would from selling their product at a higher price.
The price of oil has never been static and setting a national budget based on an estimated oil price forecast is fraught with risk. This is why it’s strange that so much attention is paid to the oil price a government needs to balance its budget.
You hear this all time. A country structured its annual spending plan – budget – based on $70 per barrel oil, but now prices are below $50/bbl, uh oh. Guess what? That country needs to adjust its budget just as any corporation or household would if there was a material change to its income base.
Alternatively, the country’s government can keep expenditures unchanged and simply borrow the difference or take it from savings, assuming it has those options. Maybe you don’t build that bridge or new refinery this year, or you find a different way to pay for it.
So next time you hear about some country “losing” billions of dollars because oil prices declined by a certain percentage, don’t feel too bad for them. Unless maybe it’s Venezuela.
8 Comments on "Oil Revenue: Is it Really Lost if You Never Earned it?"
dashster on Thu, 12th Feb 2015 4:33 am
That’s something I have thought about. $100 oil was never predicted for the period that we had it. Not even close. Even these oil prices are higher than most would have expected 10 years ago. These oil producing governments are all spendthrifts.
Dredd on Thu, 12th Feb 2015 5:42 am
We have got to revise the way we price the poison that is killing all of us.
Yeah, that’s the ticket.
rockman on Thu, 12th Feb 2015 6:17 am
dashster – Exactly the point I’ll keep boring folks with: at the CURRENT price the KSA, for example, has about twice the revenue it had not that long ago.
Dredd on Thu, 12th Feb 2015 6:23 am
It’s the “what price will killer poison be?” during the next climate disaster soon to be in the news contest.
Only those in the “what is a good price for poison” cultural trance need enter the contest.
Davy on Thu, 12th Feb 2015 6:39 am
Rock, yes, but many times the liability it had before that makes the oil price relative. The ME population and consumption have been soaring at unsustainable levels. The ME growth phenomenon is near an end and with such a large population in an inhospitable place watch out folks.
rockman on Thu, 12th Feb 2015 11:34 am
Davy – True. I don’t pay as close attention to the other ME countries as I do the KSA. But even with their baby boom they still have enough revenue and cash reserve base to keep their population sucking the same sweet tit they have been for years. hey should be able to fund whatever budget demands they have for at least several years at the current low oil price.
But we all know that tit will start drying up as their population growth outruns their depletion rate. But I suspect some of TPTB in the KSA aren’t worried about that day because they’ll be long dead by then.
bobinget on Thu, 12th Feb 2015 11:39 am
http://www.bloomberg.com/news/articles/2015-02-12/why-elon-musk-is-about-to-spend-a-staggering-amount-of-money
Speculawyer on Thu, 12th Feb 2015 4:38 pm
Don’t it always seem to go.
That you don’t know what you got ’til it’s gone.
They paved paradise and put up a parking lot