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Oil finds $100 floor on Saudi politics, output cost

Oil finds $100 floor on Saudi politics, output cost

Saudi set $75 a barrel "fair price" when economy weak while Bullish Goldman sees marginal output cost as $100 a barrel. Meanwhile, Former Saudi oil minister says oil prices could leap to $200-$300 a barrel if Saudi Arabia is hit by serious political unrest.

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April 5, 2011 12:18 by



“It seems clear that Saudi, and therefore OPEC, priorities have now changed as a result of the events of the past few months,” said Chris Weafer, chief strategist at Moscow’s Uralsib investment bank.

As it strives to stifle trouble, Saudi King Abdullah last month offered $93 billion in handouts.

Weafer estimates Saudi Arabia now needs close to $100 a barrel to balance its budget.

DOOMSAYERS
While that is at the top end of a wide range of estimates, there is broad agreement that Riyadh’s oil price aspirations are flexible.

“The markets have provided the Saudis with confirmation of the fact that the risk premium is here to stay implying elevated crude prices,” said Shelley Goldberg, director of commodities strategy at Roubini Global Economics.

“What this implies is that the Saudis, and others, are likely to throw money at this growing problem to placate doomsayers and oil supply shock vigilantes, which will have the effect of raising their budgetary break-even price for oil. The Saudi “comfort zone” is now over $80 a barrel.”

That the global economy is at the start of a new cycle of growth, not entering recession as was the case in 2008 when oil prices were last as high, may encourage Riyadh to think elevated prices will not derail oil demand growth.



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