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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.

April 5, 2011 12:18 by

In 2008 Saudi Arabia called emergency OPEC talks and said that if necessary it could raise capacity to 15 million bpd as it tried to halt the record rally to $147 a barrel that was followed by a record crash.

“I don’t think they’re doing things with the same gravity,” said David Aaron, a senior fellow, specialised in the Middle East at U.S. thinktank the Rand Corporation. “They don’t think the world’s on the brink of a major depression.”

At least for now, many analysts also see economic recovery as strong enough to withstand $100 oil.

“Our belief (is) that Saudi Arabia was comfortable with the $90-$105 type of price range … as long as they also remained comfortable that the global economic recovery, led by emerging markets, was on track,” said Societe Generale in a note.

Beyond domestic and international economic needs, an industry justification for Saudi’s $75 target prices was that it equated to the cost of producing marginal barrels of crude — the most expensive on the global market from ultra deep water finds.

Increasingly, investment bank analysts, sometimes accused of bullish bias, argue the marginal cost has risen, driven by factors including energy inflation itself and the impact on steel and other costs.

Goldman Sachs assumes that some marginal Russian crude now represents the most costly barrel at around $100.

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