Algeria’s crude prices drop below production cost

Algeria’s crude oil, Saharan blend, dropped below production costs and is now sold at a loss at $11.72 per barrel boding ill for the country’s struggling finances.

Oil prices have plunged across the globe due to shortage of demand as the lockdown reduced economic activity worldwide.

Analysts expect oil prices to remain at their lowest levels as storage capacity reached its limits in largest oil importing countries.

The production cost of Algeria’s Saharan blend is around 14 dollars. However, many analysts think it is very mitigated and that the real cost is much higher.

Algerian oil analyst, Abderrahmane Mebtoul, told Algerie 1 website that the real production price was up to 20 dollars and that any cheaper price means zero profit.

Perspective economic magazine estimates that the cheapest barrel production costs stands at 27 dollars per barrel.

Algeria’s austerity budget was based on a price of $50 a barrel at a time benchmark international crudes are trading at their lowest in about two decades.

Algeria would need at least a barrel price of 150 dollars to balance a budget burdened by subsidies. For a population that has been used for decades of state largess with a very weak private sector and low diversification, any austerity measure could be faced with fierce street opposition.

The country has resorted to money printing by the past sending its currency to devaluation. Meanwhile, its foreign exchange reserves are expected to hit a new low of 36 billion dollars in 2020 and 12 billion dollars in 2021 in the best case scenario from 107 billion in 2016.