Friday, June 01, 2012

Oil Prices Fall Well Below Breakeven for Russia, Iraq, Bahrain . . .

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

Above table as of 1 June 2012. Scan the graphs below for snapshots 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, the economic pressure on 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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