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Petrodollars: The great global divergence

Opec is losing market share as North American supplies rise and global demand remains tepid

Both this year and in 2014, the call on the group’s crude is set to fall. Non-Opec production is behind this. Output growth of 1.2 million barrels a day (b/d) in 2013 and 1.6m b/d in 2014, according to the International Energy Agency (IEA), will more than account for global demand rises of 990,000 b/d this year and 1.1m b/d next year.

But don’t shed too many tears for Opec. Its net petro-income continues to soar – even while the fuel bill keeps mounting for the group’s clients in net-importing countries. Fatih Birol, the IEA’s chief economist, says Opec will trouser about $1.2 trillion in oil-export revenue this year, or about 50% more than in in 2007. In the same period, says Birol, Opec’s output has grown by less than 5%. Oil-price inflation means it is earning a lot more money for not much more oil.

As Petroleum Economist’s latest Petrodollar graphic shows, the split between oil-importing and oil-exporting countries remains stark. For all the talk of its growing energy autonomy, US consumers still spent $1 trillion – net – on oil imports between 2010 and 2012, more than China and Japan combined. Saudi Arabia, meanwhile, earned more than $800bn in that period.

A quick glance at the graph shows the correlation between the net oil bill and GDP growth, too. Most of the shrinking or slow-growing economies are all on the right-hand side of the graphic, importing more oil than they produce and struggling economically. Iran’s slow economic growth is an exception among the big producers. But despite the raft of sanctions that have cut about 1m b/d from its oil exports in the past 18 months, Iran’s GDP numbers are still positive and its oil-export in the three years covered by our data was a healthy $266bn. That’s roughly equivalent to the UK’s entire forecast debt this year.

This petro-dollar imbalance between big, predominately Western oil-importing countries, on the right of our graphic, and the world’s biggest crude exporters, on the left, remains a problem. Too often, the money flow involves a transfer from high-spending economies to high-savings ones, meaning a big chunk of the petro-dollars do not get recycled back into the world economy.

This has been exacerbated by the financial crisis. Low interest rates in the US and UK, for example, have been used to persuade consumers to keep spending their cash; and they have pushed gross savings as a percentage of GDP down to around 11%, according to the World Bank. By contrast, the Saudi saving rate was 50% in 2011, according to the most recent data available. In Russia, the second-biggest oil-exporter both in terms of volume and income, it was around 30%.

China is an exception to this – as it is to almost all the forces that have been hurting other big oil importers. Its savings rate remains on a par with Saudi Arabia’s. It is also at the top of a pack of fast-growing Asian nations that need ever more oil to feed their rising economies.

But even for economic powerhouse China the pain is growing greater, and its oil-import bill is rising far more quickly than the US’. Our table last year calculated China’s outlay for the previous three years at $432.5bn (compared with $857bn for the US). Since then, China’s three-year bill has grown by another $135bn, a rise of 31%. US oil-import spending has risen by $138bn, or 16%, in the same period. At that rate, it will take about four and a half years for China’s oil spending to top the charts – and that doesn’t include forecast domestic production growth in the US.

Spare a thought for struggling eurozone countries, too. Brent oil prices hit their historical dollar-denominated high in June 2008 of around $134/b. That equated to €85.55 a barrel. Denominated in euros, Brent has three times since then exceeded that level. As Petroleum Economist went to press, front-month Brent contracts were trading for almost €81/b – exactly the kind of headwind the eurozone’s economies don’t need.

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