From Oil & Gas Financial Journal:
Natixis
One of the key drivers of the oil markets is the price at which principal OPEC producers balance their government accounts – better known as fiscal break-even oil prices. By monitoring the fluctuations of these break-even prices in major oil-producing countries such as Saudi Arabia, Iran, Iraq, Kuwait and the UAE, we can assess potential changes in OPEC’s desired level of global oil prices.
Saudi Arabia
Due to higher spending and a decline in crude exports, Saudi Arabia’s fiscal break-even oil price rose higher than expected last year.
Over the medium-term, Saudi Arabia is likely to face escalating pressure to reduce its oil output, paving the way for other OPEC members to increase their own production. Curtailing output, however, is likely to raise Saudi’s fiscal break-even oil price and force the government to rein in public spending, or risk a temporary budget deficit. Already, various stimulus packages introduced in response to the 2008 global financial crisis and Arab Spring have been wound down – causing economic growth to weaken.
Estimates point to a reduction of 200,000 barrels per day (b/d) in oil output and exports during 2014, which will sharply increase Saudi Arabia’s fiscal break-even oil price to approximately $97 per barrel (bbl). Coupled with mounting domestic fiscal pressure, tensions among OPEC members could be amplified as the debate over individual country output quotas is put in the spotlight.
Despite the risk of rising non-OPEC supply depressing the overall daily call on OPEC output, we would still expect Saudi Arabia to scale back production so other member states can increase their supply. The extent of this scaling back, however, will depend on the level at which the more disrupted OPEC producers increase their output, particularly as several of these countries face ongoing sectarian, political and terrorism-linked disruptions.
Iran
Iran’s oil exports fell to less than 1 million b/d in August 2012, largely due to the EU embargo and US sanctions against the major importers of Iranian oil. Exports remained at this level throughout 2013, compared with an average of 2.2 million b/d in 2011. In January 2013, Iran's oil minister acknowledged that the fall in exports cost the country between $4 billion and $8 billion each month. It’s believed Iran suffered a loss of around $26 billion in oil revenue during 2012. In the same year, Iran’s fiscal break-even oil price shot up by $26/bbl year on year (yoy).
Iran’s fiscal break-even oil price is expected to retreat this year due to projected increases in oil exports and non-oil revenue, as well as efforts to restrict government expenditure, bringing the country’s fiscal break-even oil price down from around $132/bbl (2013) to $126/bbl. This is based on the assumption that US sanctions will remain in place and non-oil revenues will increase by 8% yoy. According to the US government, Iran's oil exports will remain at the current level of around 1 million b/d – excluding natural gas liquids (NGLs) – during the six months of the interim nuclear agreement. However, US officials estimate that Iran will accrue $1.5 billion during that period from sales of petrochemicals, trading in gold and other precious metals and renewed trade with foreign firms in the automotive sector....MORE
