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201 comments on DrumBeat: September 2, 2008

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shargash on September 2, 2008 - 12:57pm Permalink | Subthread | Parent | Comments top

A few months ago someone on TOD did a superficial analysis of Saudi Arabia's budget and concluded that, given the size of their social welfare program, they would need about $90/bbl to balance their budget. Yes, the KSA could run a deficit (I think it is less likely they would scale back their welfare program because of concerns about social unrest), but I think it is more likely that they would try to defend $100/bbl.

The problem with easy money is that you get used to spending it, and sometimes it's hard to cut back to previous levels.

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Apuleius on September 2, 2008 - 1:06pm Permalink | Subthread | Parent | Comments top

However, Saudi's budget requires dollars, not dollars-per-barrel.

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Nawaralsaadi on September 2, 2008 - 1:19pm Permalink | Subthread | Parent | Comments top

I agree that OPEC as well as other oil producers have gotten used to higher prices, and this is exactly why their price target kept moving higher year after year, until they finally abandoned a price target and let the market run to the upside.

I don’t believe that any OPEC member or oil producer expected oil to trade in the $130/$140 range without a major supply shock (such as the Arab embargo or Iranian revolution), the fact that oil climbed to such levels on its own has probably given the producers a lot of confidence that oil may sustain much higher levels on regular market fundamentals then they thought was possible.

It is also worth noting that oil prices have risen by a hundred folds since the $1960s, and they never dipped to such levels after crossing the double digits in first oil shock in the $70s; and I do suspect that they will never trade for any sustainable period under triple digits in the future.

Regards,
Nawar

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201 comments on DrumBeat: September 2, 2008

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