07 April 2011

Oil Price Floor?

The FT has an important but quiet article on a recent report by the IIF:
Saudi Arabia could need the oil price to average more than $100 a barrel by 2015 to sustain the big public spending rises it plans in an effort to forestall the political unrest sweeping the Middle East.

The oil market is growing increasingly worried about Riyadh’s fiscal needs as it fears that they could force Saudi Arabia to pursue oil policies similar to those of Venezuela and Iran, traditionally the price hawks at the Opec oil cartel.

The break-even oil price the Gulf kingdom requires to balance its budget will jump from $68 last year to $88 this and then $110 in 2015, according to new estimates by the Institute of International Finance, a leading industry group.

5 comments:

  1. The political unrest can be temporarily forestalled with public spending, but in the end the crazy political project of the Saudis, i.e. to keep a medieval society piggybacking upon a modern economy, will be more likely to be unsettled by a population that is ever more aware of modern values (or lack thereof, as fundamentalists may see it), and ever keener on reform.

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  2. As one supplier attempt to raise prices by limiting production, what will others do? Drill, baby, drill.

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  3. Hector M. said... 1

    the crazy political project of the Saudis, i.e. to keep a medieval society piggybacking upon a modern economy

    Having served in Saudi Arabia when Jimmy Carter was president the crazy political project has a method to it's madness.

    Job #1 was to educate woman. We extorted 'universal education for woman' out of the Saudi's in exchange for some tanks.

    The degree of influence the local priest/imam has on a community is inversely related to education levels.

    Educated woman also have substantially lower fertility rates.

    The current Saudi fertility rate is 2.31 below the world average and not that far from the 2.1 replacement rate.

    Lower fertility rates change the median age of the population over time from 'angry teenage years' to the less volatile 30 somethings.

    The median age in Saudi Arabia is now 25.3 years, below the world average of 28.4 years.


    If elections were held today in Saudi Arabia all the illiterate woman would vote for whoever the local imam(being the best educated person they know) tells them to vote for.

    The literary rate for females is currently about 70% and rising and below the world average of 77%.

    If you want to see a country with a bleak short term future it's Afghanistan, 13th highest fertility rate, female literacy rate of 12%, median age of 18. The only bright spot is the average school age girl now is expected to receive 7 years of education.

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  4. Where's the evidence that the Saudi's are limiting production? OPEC is at the same point now that the Texas Railroad Comission was in the late 1960's. Demand is exceeding supply. The Saudi's can no longer put a ceiling on oil prices.

    http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

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  5. A small carbon tax, but directed to sustaining a medieval aristocracy, instead of research into sustainable energy.

    Since Iesteem you highly as a public intellectual Roger, I'm sure you regard this as far more distasteful a prospect than the increasingly likely Man Utd treble.

    Come on you Reds!

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