Last year Mohammed Al Hamli, the United Arab Emirates oil minister, told an industry conference that the “reasonable” price for oil was between $80 to $100 barrel, significantly more than much of the oil-consuming world wanted to hear.
But you can't argue with the man that holds the gun. And in this case, the nation which holds the most oil; Saudi Arabia.
On Monday, the Saudi oil minister, Ali Naimi, said that the kingdom is aiming to keep oil prices at the triple-digit level of $100 a barrel.
This level of oil is a third higher than its previous public target, but as some say it is a sign that Suadi Arabia needs higher oil revenues to sustain the large spike in public spending they've had recently.
But much of the attention has been elsewhere in the middle east. Just last month, Wealth Daily reported that Iran was planning to make oil $200 a barrel. Since all of the world is keeping a close eye on Iran's nuclear program and the blockade of the Straight of Hormuz, many have forgotten about the world's largest producer of oil, Saudi Arabia.
“Our wish and hope is we can stabilize this oil price and keep it at a level around $100 [a barrel],” Naimi says. “If we were able as producers and consumers to average $100 I think the world economy would be in better shape.”
As the tension continues to rises between the U.S. and Iran, Brent crude oil price follow suit, rising 56 cents on Monday but today pulling back down to around $111 a barrel.
Back in November of 2008, Saudi King Abdullah said a “fair price” for a barrel of oil was $75, about 33% cheaper than the current de facto target of $100.
Saudi Arabia's capital Riyadh is traditionally recognized as a price moderate within the OPEC oil stronghold. But now, with Naimi's recent comments, Saudi Arabia has reached the heights of “price hawks” Venezuela.
From the Financial Times,
The revised target is in part a reflection of rising public spending in the wake of the Arab spring. “The Saudis need to spend more money to keep their citizens quiet and prevent protests,” said Carsten Fritsch, oil analyst at Commerzbank.
Bill Farren-Price of consultants Petroleum Policy Intelligence added that there was a “consensus” within OPEC that $100 a barrel was the appropriate price level for its members’ fiscal requirements and the need to invest to boost supply. “The context is an industry where a lot of new investment is predicated on that kind of price level.”
Analysts can't be surprised by the kingdom's declaration of oil prices, as King Abdullah had announced two populist programs of handouts and a large increase to public spending last year which cost $129 billion. The total equaling more than half of Saudi oil revenues.
To be able to spend it, you need to earn it. And that is exactly what King Abdullah is doing...
In 2002, Saudi Arabia --according to the International Monetary Fund-- was able to balance its budget with oil prices averaging $20-25 a barrel.
Those days seem to be long gone. Today, the IMF estimates that Riyadh needs at least $80 a barrel to balance its budget, which is up from about $50 a barrel in 2008.
It's not just Saudi Arabia that is on this higher level of oil kick. To fiscally break even of the United Arab Emirates, Iran and Iraq has risen to between $80 and $100 a barrel.
To add on top of the fiscal balancing of Saudi Arabia (along with other oil producing nations), last month we reported that oil prices will remain high thanks to OPEC by limiting world production. The 2002 prices -- even 2008 prices -- don't look to be anywhere within reach anymore.
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