by Joel Bowman

10-03-08 The world’s oil-exporting countries have become dependent on high prices in order to fuel domestic economic growth and will be reluctant to let prices drop, a leading oil consultancy has said in a report. PFC Energy said many OPEC members cannot afford to sustain their current level of economic activity if prices drop to what they were just a few years ago.
“The economies of most producer countries now require massive [revenue] flows, which are only possible with higher prices,” said Robin West, chairman of PFC Energy, quoted the UK's Financial Times. “This is one of the factors leading to long-term higher prices.”

Of the Gulf states outlined in the report, PFC Energy said Saudi Arabia and Iran would be the most exposed if the price of crude fell, with the two countries needing oil to stay at $ 55 just to “break even". Crude was last seen trading at this level around two years ago.
Increased government spending in net oil-exporting countries and a ramp up in domestic consumption has lead to an over-reliance on high prices, according to PFC Energy, leaving oil-exporting countries severely exposed if prices recede. Other Gulf states bound to oil’s record rally include the UAE, Kuwait and Qatar, all of which require oil to average $ 50 to meet the extensive financial commitments made by their governments.

The report found that Venezuela is the most dependent on oil maintaining its record streak, requiring prices to average $ 94 this year and $ 97 in 2009 just to service its external accounts. Nigeria is the next most dependent on high prices, requiring crude to say around $ 70 over the next two years.
Oil reached a record high of almost $ 106, but many experts believe a slowdown in the global economy could precipitate a shortfall in demand that could put significant downward pressure on prices.

In the 50 years preceding 2007, oil averaged just $ 24.20.