"ALL CAPS IN DEFENSE OF LIBERTY IS NO VICE."

Saturday, June 09, 2012

Oil Prices Fall Below Break-Even for Several Nations

... and what that might mean.

Important note: In this post, the break-even point seems defined as the price point needed to pay for the various government services the oil props up.

Countries like Saudi Arabia, Iran, Iraq, and the UAE, are countries who have few industries, other than oil, contributing to their GDP.

Additionally, these countries are leveraged about as far as they can go, with respect to the various government services they provide to their citizens.

They are at a breaking point. If they fail to provide said services, Revolution could be the next step.

From Al Fin:
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:
 
                $/bbl
 Algeria        105
 Iran           117
 Iraq           112
 Kuwait         44
 Libya          117
 Qatar          42
 Saudi Arabia   71
 UAE            84
 Sources: National authorities and International Monetary Fund


_Reuters

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. 






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.

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.

12 comments:

Reliapundit said...

Rubbish. There is no way Putin loses money if oil is 50bucks a barrel. Total bs.

Pastorius said...

I think the break-even point is defined as the price point needed to pay for the various government services the oil props up.

Pastorius said...

Fixed it.

Please read what I added.

If you don't agree with my premise, please take it down.

Reliapundit said...

oil income declines as prices declines but ti doesn't become unprofitable.

reduced profits may crimp the ambitions many states.

Pastorius said...

Yeah, that would be the idea. Maybe it was poorly expressed.

But, here's another way of putting it. A company is not profitable if it does not first cover the cost of it's operations.

If a state is funded by oil revenue (when a state ought not be funded by industry, but instead, ought to be funded only by taxes - states ought not be in business) then part of the cost of overhead is EVERYTHING THE STATE DOES.

If that is the case, as it is in places like Russia, the UAE, Saudi Arabia, and Iran, well, then they have a higher profit threshold.

Reliapundit said...

our shale oil and oil from sands are more expensive to extract that russian oil or arab oil.

Pastorius said...

Yes, they are.

But we don't run our state on Oil.

Our state does not own private industry.

Pastorius said...
This comment has been removed by a blog administrator.
Reliapundit said...

OUR RECENT OIL DISCOVERIES WHICH HAVE INCREASED OUR RESERVES ARE MORE EXPENSIVE TO REVIVER RTHAN RUSSIAS OR IRANS OR ARABIAS.

OUR INDUSTRY NEED AN 80/BARREL PRICE MORE THAN THEY DO.

EXCEPT THAT RUSSIA NEEDS THE ADDITIONAL INCOME TO PAY FOR THEIR MILITARY EXPANSION.

ALL MAJOR NATIONS/ECONOMIES HAVE TOO MUCH BAD DEBT. SOCIALISM HAS DONE THAT.

SO HIGHER OIL PRICES HAS A BENEFIT. HIGHER THAN 40, BUT LOWER THAN 80.

END OF STORY.

Pastorius said...

Yeah, I get what you're saying. You are absolutely right.

Pastorius said...

When you say lower than $80 though, it would seem to me that is an America-centric comment. Other nations do not rely on cars the way we do. Maybe I'm wrong, but I don't think the price of gas constitutes as high a percentage of the GDP of other nations as it is in the US.

Am I wrong?

Reliapundit said...

so wrong it's silly.

our recently exploited oil reserves are more expensive to extract.

this has nothing to do with how many cars we have. or truck.

the cost of energy to consumers is way too high for the economy as a whole - globally.

cutting taxes on energy and reducing co2phobic regulations would help.

but that doesn't change the costs of oil extraction.

below 50 bucks/barrel a lot off what we're extracting in the dakotas would not be so profitable. today. until even better extraction technology makes it even cheaper.