The price of Brent oil, a benchmark for Algerian oil, has dropped significantly, falling around 20% in just 10 days and briefly dipping below $90 per barrel on Tuesday, its lowest level since August. Despite this sharp decline, Algeria's economy, heavily reliant on hydrocarbon revenues, appears to be weathering the storm in the short term. The country's 2027 budget is based on a fiscal reference price of $60 per barrel and a market price of $70.
The decline in oil prices is attributed to market expectations of a diplomatic resolution to the conflict between the US and Iran. Following a meeting between US President Donald Trump and Qatari Prime Minister, investors have reduced the risk premium accumulated since February's airstrikes. Additionally, the global supply of oil has increased, with OPEC production rising in October and the volume of oil transiting through the Strait of Hormuz remaining steady.
For Algeria, the current Brent price of around $90 per barrel is still approximately 29% above the predicted market price and 50% above the fiscal reference price in the 2027 budget. This means that the country's revenue from oil exports remains substantial, feeding into the Revenue Regulation Fund, which helps cover the Treasury's deficit. The fund is crucial in supporting the government's budget, which forecasts a significant gap between revenue and expenditure.
Algeria's Sahara Blend oil, known for its high quality, typically trades above Brent. In September, it averaged $118.49 per barrel, according to OPEC's monthly report. Although the November report is pending, the sharp decline in November will be reflected in the December report. The Sahara Blend's high prices throughout the year have supported Algeria's revenue.
A sustained drop in oil prices would impact Algeria's revenue, with estimates suggesting that every dollar decrease in the barrel price translates to around $159 million in lost revenue per year. A $20 drop would result in a loss of approximately $3.2 billion annually. However, this calculation only accounts for crude oil exports and not other petroleum products, natural gas, and liquefied natural gas.
The decline in oil prices will not directly affect fuel prices in Algeria, as the government sets these prices regardless of global market fluctuations. However, a lower oil price could reduce costs for the country, including the bill for imported diesel and transportation costs for imported goods.
Algeria is part of the OPEC+ group, which sets production targets. The next meeting to review production levels is scheduled for November 29. While a resurgence of conflict in the Middle East could quickly drive prices back up, as seen in March, the current market dynamics suggest that Algeria's oil revenue will remain stable in the short term.
Key points
- Algeria's 2027 budget is cushioned by a fiscal reference price of $60 per barrel, allowing the country to weather the current drop in oil prices.
- The country's revenue from oil exports remains substantial, with the Brent price still around 29% above the predicted market price.
- A sustained drop in oil prices would impact Algeria's revenue, with estimated losses of approximately $3.2 billion annually for a $20 drop in the barrel price.
