Posted on 12/08/2008 10:33:37 AM PST by thackney
OPEC has a math problem.
When demand for oil is rising, members of the Organization of Petroleum Exporting Countries take extra portions from the expanding output quota pie. But when it falls, as now, they are supposed to share the pain of lower production even as oil prices are declining, a double blow to cash flows.
As the organization's biggest member, much of the burden of managing all this rests on Saudi Arabia.
Yet it also must consider its customers and long-term demand.
This largely explains OPEC's recent decision to put off further output cuts, even as crude prices continued sliding. It also is why oil bulls can expect little relief from Riyadh next year.
Saudi Arabia's current output quota is 8.5 million barrels a day. After domestic use, that leaves seven million barrels for daily export. Ahmad Abdallah, commodity analyst at financial-services firm GaveKal, points out that Saudi Arabia's 2008 budget was set at $109 billion. With oil exports accounting for just under 90% of public revenues, that equates to an oil price of $38 a barrel to balance the budget. The OPEC basket price has averaged $98.50 a barrel this year.
Nymex crude-oil futures, having dropped 17% in the past week alone, now command just $42. The OPEC basket price typically trades at a discount of $5 to $10. Were Nymex crude to average $40 next year, and OPEC crude $35, Saudi Arabia's 2009 oil-export earnings could drop to $89 billion.
(Excerpt) Read more at rigzone.com ...
I also hope this doesn't give us the excuse to go back to business as usual.
Ahhh..., so Saudi Arabia squeezes its rivals, still makes money and keeps everyone addicted on oil (at least by low prices for a while) and laughs all the way to the bank....
I’ll take it... LOL...
I do like the $1.42 a gallon here...
Oil export earnings 89 billion.... Boo Hoo!
Does Saudi Arabia really use 1.5 million barrels a day? I don't know much about oil, and I realize that Saudi Arabia is not just a big desert with a bunch of camels, but 1.5 million barrels a day seems like a lot for them to use for their own domestic use.
Low oil prices as well as public apathy will give the Dems the opportunity to come down hard on the oil and gas industry in the US. I’ll bet we see massive amounts of Federal land become off limits to new and continued exploration.
Seems to me that when oil is high, like the $140 level recently, it would be easier for OPEC to cut production. Less oil produced, but a lot of money coming in.
OTOH, with prices down around $42 it would seem that OPEC would have to sell more barrels just to maintain each members budget. Anywho, lets all hope that some sort of technology will enable us to get off of the OPEC teat in the near future.
No, they use more than 2.1 million barrels a day.
Saudi Arabia Energy Profile
http://tonto.eia.doe.gov/country/country_energy_data.cfm?fips=SA
It already exists. Drilling rigs, just use them in this country. Combine with oil sands and oil shale that have been in production in other countries for more than a decade.
I don't know if they are on line yet, but Saudi Arabia has plans to build massive downstream processing plants using their own energy sources. As I understand, they plan to run refineries, make plastic stock and fertilizer. Massive plants with very few people needed to run them.
I don’t think that Prius’ are big sellers there.
Don’t they also give away oil / heating oil to countries as a public relations act?
Plus coal to diesel refineries.
The internal politics of OPEC that this article discusses are a fascinating topic.
The Saudis are playing this turn events very shrewdly. By keeping the price of crude at the current level they slow down or stop energy conservation efforts in the developed countries and they deny new capital to potential rivals Russia and Venezuela.
Saudi Arabia is acting like a smart heroin dealer: they give us enough junk to keep us addicted by they avoid killing off their cash cow.
1.66 in daytona beach this weekend...we are getting there....
Plus coal to diesel refineries.
Amen, all of the above is the way to go!!!
wahabbist saudi arabia should have been the first target in the WOT.
In sum, don’t expect oil prices to jump up anytime soon.
Demand is down, and slowing, and the Saudi’s can, if necessary, use it to squeeze the Iranians.
If I was forced to make a prediction, I would say to expected the unexpected, whatever that means.
There are several conflicting indicators. And near term (less than 1 year) future prices are noticeably higher than current.
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