While Morse says U.S. producers break even with prices of about $72 to $75 a barrel, and will keep drilling new shale wells at $60 because they’ve already hedged future output, Saudi Arabia faces different challenges.
Last year, as popular uprisings toppled leaders in Tunisia, Libya and Egypt and sparked a civil war in Syria, Saudi King Abdullah promised to spend $130 billion on extra subsidies for housing and benefits as well as $500 billion for previously announced infrastructure projects.
The kingdom’s population of 28.4 million is growing 2.9 percent a year, according to the Central Department of Statistics and Information. At current rates, it will need all its own oil by 2032, leaving nothing to export, Citigroup said in a Sept. 4 report. The country uses about 25 percent of its fuel production domestically, more per capita than any other industrialized nation, the report said.
Waste and misuse of fossil fuels threaten to double consumption by 2030, Saudi Oil Minister Ali al-Naimi said in a Nov. 24 speech in Riyadh. The kingdom consumes an average of 2.5 barrels of oil and oil equivalents to produce $1,000 of national income, twice the global average, he said.
“The Saudis are trying to do two things: they want to keep prices from going too high to hurt economic activity and at the same time not let oil go below $100 a barrel,” Ciszuk, the KBC Energy consultant said in a telephone interview Dec. 5. “I would struggle to see the Saudis willing or able to take oil prices low enough to cut off U.S. shale developments since even they need oil in the $80s to balance the government budget through 2013 and 2014.”
For all the growth in U.S. production, Al-Naimi told reporters at yesterday’s OPEC meeting he isn’t concerned by the burgeoning output from shale deposits, while United Arab Emirates Oil Minister Mohammed Al-Hamli said producers are “very concerned” and will protect their interests.
Saudi Arabia, OPEC’s biggest member, can still sway global markets more than other nations. It has spare capacity to pump as much as 12.5 million barrels a day, or 29 percent more than last month’s levels, which were the lowest in 13 months, according to an OPEC report this week. The country supplies more than 10 percent of the world’s oil.
“The U.S. will never be the new Saudi Arabia,” said Mike Wittner, Societe Generale’s New York-based head of oil market research for the Americas. “The Saudis are able to increase production when they want to and are willing to cut when they need to, and the U.S. will never do either of those things.”
U.S. stockpiles have grown 13 percent in 2012 as production climbed to nearly a 19-year high, according to the Energy Department. The rise in reserves is one reason why the average regular unleaded gasoline price has tumbled from this year’s high of $3.936 a gallon, according to data compiled by AAA. The current price of $3.315 is 1.1 percent higher than the start of the year.