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Algeria Holds Out For OPEC Output Deal

Shoe week

ALGIERS—OPEC is holding its latest gathering to bolster oil prices this week in a country that exemplifies the economic squeeze gripping the cartel's poorest nations.

Algeria gets about 95% of its export revenue from oil and gas sales and needs prices as high as $87 a barrel to cover government spending. The price of crude is currently around $48 a barrel. The country's gross domestic product is expected to drop 3% this year, the International Monetary Fund says, with oil and gas revenue falling by half.

Algerian oil-field workers like Abdellah Medjkane, 41, have seen their wages stagnate and their prospects dim with the drop in value of Algeria's oil production.


Algeria is one of the Organization of the Petroleum Exporting Countries have-nots, a group of countries in the 14- nation cartel that includes Venezuela, Ecuador and Nigeria. These countries have fared poorly since oil prices began their long descent to less than $50 a barrel from over $100 a barrel in 2014 and have consistently pushed for OPEC's rich countries like Saudi Arabia to lower production to raise oil prices.

"They are the ones in trouble. They just have OPEC to hang on to," said John Hall, the head of U.K. energy consultancy Alfa Group and a longtime observer of OPEC's affairs. "The Saudis don't need OPEC."

In Venezuela, the economy contracted by 5.7% in 2015 and inflation is galloping at 121%. The South American country's oil production is falling as needed investments to increase output are put off.

Nigeria is facing a sharp drop in the value of its currency, which plummeted over 40% against the dollar in June. The country's oil output hit historic lows this summer after militants sabotaged pipelines.

Meanwhile, Saudi Arabia and other Persian Gulf producers have pumped at record levels, adding to a glut of petroleum that keeps prices low. While Riyadh has taken a financial hit, the kingdom has $555 billion in foreign reserves and is planning a public listing of its state oil company that could rake in over a $100 billion.

Few analysts say that OPEC will come out of Wednesday's meeting with a decisive deal. Disputes between Middle East rivals Saudi Arabia and Iran are the main obstacle.

Algeria has been an unusually outspoken advocate of bridging the divide.

Nourredine Bouterfa, Algeria's oil minister, is normally one of the cartel's less vocal members, but he has led a flurry of meetings from Algiers to Moscow to Paris in the run-up to this week's talks. Mr. Bouterfa said Sunday that the cartel needed to cut production by 1 million barrels a day and promised that this week's meeting will produce at least a framework for an agreement, if not a bona fide deal.

The price of oil is a daily obsession in this sun-bleached city where ornate French-style architecture blends with the minarets of mosques. Oil dominates the front pages of newspapers and is the subject of conversations over tea in cafes.

Oil money is the driving force behind vast national spending on social programs here. President Abdelaziz Bouteflika has long directed subsidies to fuel costs, food and cheap housing, helping him maintain his 17-year, military-backed grip on power.

Low oil prices have undermined those policies. The costs of imported goods such as coffee have doubled as Algeria's currency, the dinar, weakened.

An OPEC failure "would hit oil prices and that would impact the costs of basic goods for the average Algerian," said Kamel Haddar, 34, an investor in agriculture and e-commerce companies.

The IMF warned in May that Algeria needed to reform its generous subsidy system and shake up its bureaucracy. The IMF said the country's oil stabilization fund—a rainy-day account—shrunk sixfold in three years to 740 billion dinars, about $7 billion.

The government responded this year with a proposed new budget that will hike taxes on consumer goods like tobacco and electronics and on businesses like real estate.

The proposal doesn't touch food and fuel subsidies, the third-rail of Algeria's political system.

So far, Mr. Bouteflika has managed to avoid Arab Spring-like demonstrations by maintaining state support for industry and consumers.

If the government cut subsidies, "there could be protests," said Djamel Benabdeslam, a former Islamist lawmaker who now heads the moderate New Algeria Front.

Politicians and businesspeople say the country is in need of a deeper shake-up: a diversification away from oil. Similar plans are under way in Saudi Arabia, but Algeria's political class is beginning only now to wake up to the dangers of being too dependent on petroleum.

"Algerian citizens want to get rid of their dependency on hydrocarbons," said Mohcine Belabbas, who heads a key opposition party, the Rally for Culture and Democracy.

Write to Benoit Faucon at benoit.faucon@wsj.com

(END) Dow Jones Newswires
09-27-160605ET
Copyright (c) 2016 Dow Jones & Company, Inc.




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