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Tuesday, March 29, 2011

How Low Will Price of Oil Go? Brent Won't Go Below $83/Barrel

Due to factors discussed before and which I won't go into again (at least for now), Saudi Arabia has the "power" to raise the global price of oil, but it no longer has the clout it once did to lower the price of oil.

That is a shift from the 1980s when Saudi Arabia had enough oil that it could affect the price of oil going up or coming down. Now, Saudi Arabia can only affect the supply of oil to result in increased price.


It turns out that Saudi Arabia's budget requires that oil stay at least above $83. This is what Saudi feels it requires to distribute enough money across the kingdom to prevent unrest being seen in much of the Mideast.
Many of OPEC’s biggest producers are using the price gains to increase public spending, partly to guard against popular unrest. Saudi Arabia announced a multiyear spending package of $129bn and is expected to spend about $35bn in 2011.

This largesse means the country now needs an oil price of $83 per barrel in order to balance its national budget this year. “The more they earn, the more they tend to spend. So the oil price they need is ratcheted up,” said Leonidas Drollas, chief economist at the Centre for Global Energy Studies in London.
$83. That's an important number to remember. Some time ago, EOG said the Bakken was "robust" at $40/bbl of oil  Based on the current delta, Brent $83 oil translates into about WTI $73 oil.
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2 comments:

  1. Greg Lang of Minneapolis, MNMarch 30, 2011 at 5:58 AM

    Al Gore has now given us permission to not support ethanol fuel, which uses enough corn to feed 350 million people.

    High food prices are behind the Mideast unrest so, in an offbeat way, ethanol is helping the Bakken because Saudi Arabia and other Mideast countries have to give their citizens more "benefits" in order to placate the "masses".

    In a practical sense almost half of the people in the "Mideast" earn under $2 per day so food costs are a huge deal.

    If we believe Wikileaks, Saudi Arabia had limited reserves so it could not drive the
    price of oil down for any protracted amount
    of time.

    The long term investment planning for "unconventional deposits" like Bakken depends on the 'floor price' of crude. Bruce and this blog got it right.

    ReplyDelete
  2. Bruce OksolMarch 30, 2011 at 6:28 AM

    Greg,

    Thank you for you kind words. I notice that I forgot to link the original article.

    It came from the "Financial Times" (London). I will have to find that article and link it.

    Thank you for taking time to comment.

    ReplyDelete

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