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Monday, 26 September 2016

Pain persists without an Opec agreement | The National

Pain persists without an Opec agreement | The National:

"As Opec and Russia are preparing to meet in Algiers to discuss the prospect for an output agreement, oil producers have been watching their fiscal revenues slump. Failure to agree would only prolong the macroeconomic crisis faced by some and the fiscal predicament of others. Supply and demand-side factors suggest that the oil price is likely to stay low for longer than initially thought. But at this point, it’s easier to address supply-side dynamics.

The collapse of the oil price has exposed the mismanagement and dysfunctions sustained during the boom years. On a large scale, the size and probable persistence of this external shock means that all oil exporters will have to further adjust by reducing spending and increasing revenue.

Venezuela’s economy is in perpetual crisis. Economic mismanagement and the low oil price have led to shortages of foods like corn and rice, which it once easily imported using the national oil company’s vast foreign currency revenues. Essential medicines such as antibiotics have disappeared. The economy is set to contract by 10 per cent by the end of the year and is already experiencing triple-digit inflation. The price of bread alone has doubled from month to month, now about 50 cents a loaf in many places, at a time when the oil workers here say they are making less than a dollar a day because of the inflation. The state oil company is hobbled by debt, two thirds of its exports go to paying off its lenders. The desperate condition of Venezuela’s state oil company has international oil traders concerned that its collapse could shock an otherwise oversupplied global market."

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