Fitch May Downgrade Oil Producers

Oil price fell by a third of its value overnight after a messy breakup of the OPEC+ alliance, as members of the Organisation of Petroleum Exporting Countries (OPEC) shed over US$0.5bn a day in lost revenue, according to Reuters calculations.
OPEC had been pushing for expanding the existing cuts with its allies, known as OPEC+, by additional 1.5m barrels per day to over 3mbpd until the end of the year, but Russia has rejected the proposal, causing the collapse of the alliance and the start of a price war over market share.
For the most part, oil is a top income source for members of the Organization of the Petroleum Exporting Countries and such a dramatic fall in prices is expected to put a strain on the economies of countries like Iran and Venezuela, which are already on the brink.
Brent crude futures fell by as much as 31% to $31.02 on Monday, the lowest since mid-February 2016, after shedding nearly $20 a barrel from its high before the meeting of OPEC and its allies on March 6.
This means, according to Reuters, that in total, and based on their average February production, OPEC members lost over $500m in revenue, which are a lot more pronounced when compared with the high of $71.75 a barrel that Brent hit in January.
OPEC members Nigeria and Algeria on Monday agreed that the breakdown of the deal will be painful for producers.
For some nations, including one the group’s richest members Saudi Arabia, fiscal budget break-even oil prices were already much higher than the oil price before the most recent collapse.
“A $10 a barrel decline in oil prices lowers fiscal revenues by 2-4% of GDP, depending on the country, and fiscal break-even prices are well above current levels for all Gulf Cooperation Council sovereigns,” Jan Friedrich, Head of Middle East and Africa Sovereign Ratings here at Fitch Ratings said.
Continuing, he however noted that “at least the higher-rated sovereigns, particularly Kuwait, Qatar and Abu Dhabi, have ample buffers, mainly in the form of sovereign wealth funds.”
Meanwhile, the ongoing sharp drop in oil prices continue may pull down Nigeria’s sovereign rating, like those of other exporter countries with weaker finances and especially those with the added pressure of pegged exchange rates, rating agency Fitch said on Tuesday.
Friederich told Reuters in London that with the oil prices likely to stay low for some time, countries like Saudi Arabia, Iraq, Oman and Angola are also in focus.
“Countries that are in a somewhat vulnerable external position and have a fixed exchange rate are of course particularly vulnerable,” Reuters quoted Friederich as saying.
On individual countries, he said Saudi Arabia’s financial reserves and its sovereign wealth fund provided a buffer, which was not an “infinite leeway” in the country’s A (stable) rating for the buffers to disappear.
A continued rise in government debt in Oman “would be a concern” he added, while Nigeria’s B+ (negative) rating could face problems if a “prolonged attempt” to defend the country’s currency peg ate heavily into its international reserves.
Commodity dependence is most pronounced globally in Angola, Iraq, Suriname and Gabon, Fitch analysis shows and there are a dozen more developing countries for whom commodities exceed 70% of foreign-currency income.