Because of ultra-low oil prices, such OPEC nations as Angola, Nigeria, Iraq, and Venezuela found themselves neck-deep in debt. The thing is that these oil nations accumulated pretty considerable debt during the bullish cycle in the oil market when oil prices used to be much higher than they are these days. While these the debt was borrowed to improve the economic well being and oil prices allowed these nations to service it much easier, the oil market crash lead to a situation when oil exports started brining less considerable income, thereby making servicing the debt a real challenge. These days, in order to service their debts, the poorer OPEC nations has to provide their lenders with 3 times as much crude oil as they used to do.
On top of that, the increasing debts spoiled the relations inside OPEC. Today, the poorer OPEC nations wants production cuts to make oil prices recover to some extent, while the richer OPEC nations like Saudi Arabia are not going to back it since they are fighting for the market niche and will be glad to oust from the industry as many competitors as possible.
It is a real problem. Let’s take Angola for example. This is Arica’s biggest oil producer and exporter. Since 2010, Angola has lent from China as much as $25 billion (including $5 last December). Earlier this year Sonangol, Angola’s major oil company, had to spend almost all of the crude oil produced over the period to service the debt. This year alone, Nigeria, Iraq, Angola, and Venezuela are expected to supply heir lenders with crude oil to the amount of 30 to 50 billion dollars, if to believe the recent research made by Reuters.
At $120/b, in order to cover the debt of $50 billion, the borrower will be obliged to supply the lender with 1 million barrels a day over the next 12 months. At $40/b, this is going to be 3 million barrels a day over the next 12 months. Those loans were taken to survive and improve the economic situation. Still, they already have no money for further investments, which something that puts their long-term well-being in jeopardy, Masterforex-V Academy experts say.
As for China, it has been a major lender for Venezuela . Since 2007, China has lent to Venezuela $50 billion within the scope of the program named “Oil and Fuel in exchange for Loans”.
According to Barclays analysts, Venezuela is obliged to supply China with $7 billion in crude oil, which is 800K barrels a day over the next 12 months versus 230K barrels a day at $100/b.
The same holds true for Iraq and Nigeria. They are obliged to supply billions of dollars in crude oils to various companies including Exxon Mobil and Shell.
