02 June 2012

Oil Prices Fall Below Break-Even for Several Nations

This article was previously published on Al Fin Energy blog

Despite a fall of oil prices below break-even levels for several nations, Saudi Arabia shows no inclination of reducing its high rate of oil production.
 Following is a table of some OPEC producers' fiscal breakeven oil prices:
 Algeria        105
 Iran           117
 Iraq           112
 Kuwait         44
 Libya          117
 Qatar          42
 Saudi Arabia   71
 UAE            84
 Sources: National authorities and International Monetary Fund


The above table is from an article dated 1 June 2012. Scan the graphs below for images of break-even levels from May 2012 and December 2011. Notice that the estimated break-even levels tend to fluctuate. It is likely that most of those published levels are underestimates.

In Russia, for example, the most recent estimate for break-even price level is $117 per barrel. But Russian insiders estimate the true break-even level is closer to $150 a barrel -- particularly with Putin's ambitious new re-building schemes.
May 21st 2012

1 December 2011
Citibank expects that Russia will have a very turbulent next five years, given their estimate that Brent crude prices will likely settle close to $85 over that time period.

Oil producers are beginning to feel the future threat of peak demand for oil caused by multiple factors -- including unconventional liquid fuels -- breathing down their necks. For oil to sell in the coming markets, producers will have to price their product to be competitive.

For some quasi oil dictatorships such as Iran, Venezuela, and Russia, reduced revenues to support ambitious government spending could lead to intemperate, perhaps violent, actions, geared to force oil prices much higher. They will require a close watching.


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Blogger J said...

Close watching will not help. Preventive action is indicated.

Saturday, 02 June, 2012  
Blogger al fin said...

J: If you have any suggestions for effective preventative actions . . .

Russia's belligerency is shared by and provides cover for its bad boy client states and putative allies, in Putin's shadow war against the west.

But if Russia can only get half the price for energy that it needs to support Putin's ambitious buildup, expect Russia to act through proxies to squeeze prices higher. The corruption of the FOPs (friends of Putin) is a constant. Capital flight out of Russia is increasing. Military spending on new generations of WMDs is likely to be funded, given Putin's determination to put more steel behind his threat. That means Russia's domestic human infrastructure will suffer.

Sunday, 03 June, 2012  
Blogger J said...

May I risk a half-baked hypothesis? World economy is in semi-recession, oil substitutes are gaining ground, oil demand seems to be falling. A competent macroeconomist could build a price-demand curve and calculate the optimum price of oil for Russia. Since I am but an ignoramus and think with my guts, my gut feeling is that the current price is more than right and any squeezing would backfire. Even Ahmedenijad is behaving himself and making no trouble in Hormuz.

Monday, 04 June, 2012  
Blogger painlord2k@gmail.com said...

The problem for the oil financed dictators is the Western Economic Depression. Without the wealth produced and expended by the Westerns there is no market for their resources. And without a market to sell their resources, they have not the resources to buy their serf submission and pay their thugs.

Even if Putin or Iran put squeeze to the oil price higher, the boomerang effect would be to plunge the West Economy in a worse recession, force greater cuts and improved efficiency. All the goods produced by western countries would have rising prices and this would more than offset the rising income of the oil producers.

In the end all imports must equal all exports.

Monday, 04 June, 2012  
Blogger Pastorius said...

Al Fin,
Do you have any information on the break-even price of oil for the United States?

Saturday, 09 June, 2012  
Blogger al fin said...


The break-even price only applies to countries that are net exporters of oil, and who use oil revenues to support a large proportion of their government revenues.

Countries such as the US with a relatively healthy mix of industries and commercial enterprises do not depend upon any one industry.

Russia, Saudi Arabia, Venezuela, Norway, Iran, etc. do directly depend upon energy revenues to run their governments and fund their social services. When social benefits start to run short, the natives often grow restless. Corrupt government kingpins cannot afford to let that happen.

Tuesday, 12 June, 2012  

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