The Saudis have been making noise about a nice round number but I don't know if they were talking Arab Light ($94.26 +0.87) or Brent or WTI.
From OilPrice, September 11:
- The OPEC+ decision to cut production has added to the inflationary pressure threatening the economic health of the U.S. and many countries allied to it.
- China’s willingness to tacitly encourage escalating oil and gas prices is likely to be outweighed over time by the indirect impact of that on its economy.
- The short-term steady equilibrium price for Brent looks to be around US$80-85 pb, with a ceiling of around US$95 pb.
The decisions last week by Saudi Arabia to continue its 1 million barrel per day (bpd) production cut to the end of this year and by Russia to extend its 300,000 barrels per day export cut for the same period conspired to push oil prices to their highest level since last November.
This in turn has added to the inflationary pressure threatening the economic health of the U.S. and many countries allied to it. The question for these net oil importers (and gas importers too, given that historically 70 percent of gas prices have been comprised of the price of oil) is at what level the two leaders of OPEC+ will halt their efforts to keep pushing prices higher?
The first part of this equation revolves around the necessity or not of higher prices to keep these two economies afloat, or whether it is simply greed at work, or a geopolitical power play, or any combination thereof. It is a common conception that Saudi Arabia’s economy is a powerhouse, fuelled by vast revenues from oil. The latter part has some truth to it, helped by having (along with Iran and Iraq) the lowest lifting cost per barrel of oil in the world, at just US$1-2.
This said, much of these revenues are deducted almost at source, through the massive dividend repayment obligations that must be made every quarter by Saudi Aramco. Even with Brent oil price averaging around US$80 pb in Q2, 65 percent of its net income went on this debt payment to shareholders. If its net income stayed the same in Q3, this debt payment would rise to 98 percent. What is left after these deductions is the foundation stone of all Saudi Arabia’s spending, which includes not just the basic functions of state – such as health, education, and defence – but vast socioeconomic and vanity projects as well, as analysed in depth in my new book on the new global oil market order.
In theory, then, Saudi Arabia’s fiscal breakeven oil price is US$78 pb of Brent. In practice, however - as the fiscal breakeven oil price is the minimum price per barrel that an oil-exporting country needs to meet its expected spending needs while balancing its official budget - its true fiscal breakeven oil price has no set limit. The same applies to Russia. For around 20 years, it had a fiscal breakeven oil price of around US$40 pb. Following its invasion of Ukraine on 24 February 2022, though, officially this has jumped to US$115 pb....
....MUCH MORE
