Arab oil faces higher ‘break-even’ price

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http://www.marketwatch.com/story/arab-oil-faces-higher-break-even-price-2011-05-29

HONG KONG (MarketWatch) — A sharp rise in domestic government spending by Saudi Arabia and other key Arab oil exporters threatens to upset the mutually beneficial relationship they’ve kept for decades with energy consumers worldwide.

A wave of popular protests sweeping the Middle East and North Africa has toppled regimes in Tunisia and Egypt and led to civil war in Libya. It has also forced the region’s rulers to launch programs worth tens of billions of dollars in attempts to redress public grievances.

The spending spree is likely to be felt far beyond their borders. To cover the cost, energy producers have to squeeze more money from their oil fields. That means raising their “break-even” price — the amount of money they must make from each barrel of oil — to avoid fiscal deficits.

Failure to fund these new commitments could lead to domestic spending cuts, which could stoke social and political unrest, or jeopardize their fiscal soundness by requiring they take on more national debt or draw down sovereign wealth funds accumulated over the years.

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1. Breakeven price for the Saudis is up 23% to $84...

Higher Saudi spending pushes breakeven price of oil up 23%

Riyadh: Saudi Arabia's breakeven price for oil jumped an estimated 23 per cent after the kingdom promised the biggest public-spending increases in three decades, creating a new floor for crude as it trades near a three-year high.

More-generous benefits promised by King Abdullah Bin Abdul Aziz will cost $129 billion (Dh473 billion) over the next several years, according to John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi. The outlays will add $15.50 a barrel to the price Opec's largest producer needs to balance its budget, according to the median estimate of analysts surveyed by Bloomberg News.

The kingdom now needs oil to sell for at least $84 a barrel to balance its budget, according to the Bloomberg survey of six analysts. That's up from a median of $68.50 a barrel before the handouts, they estimated.

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3. Keep America dependent on oil?

Saudi Prince Al-Waleed bin Talal said Sunday that he wants oil prices to drop so that the United States and Europe don't accelerate efforts to wean themselves off his country's supply.

In an interview broadcast Sunday on "CNN's Fareed Zakaria GPS," the grandson of the founding king of modern Saudi Arabia said the oil price should be somewhere between $70 and $80 a barrel, rather than the current level of over $100 a barrel.

"We don't want the West to go and find alternatives, because, clearly, the higher the price of oil goes, the more they have incentives to go and find alternatives," said Talal, who is listed by Forbes as the 26th richest man in the world.

http://www.cnn.com/2011/WORLD/meast/05/29/us.saudi.prince.oil/index.html?hpt=T2