DUBAI - A steep fall in oil from a record of $135 a barrel would have a drastic impact on oil producers' spending power, but they could balance their budgets with prices far below current levels.
Members of the Organization of the Petroleum Exporting Countries (OPEC) have raised their traditionally conservative price assumptions, while still making generous allowance for the oil market to fall.
"At the rate they are growing their budgets, at 2013 the oil price break-even point will be $70 a barrel," said John Sfakianakis at SABB bank, HSBC's Saudi affiliate.
That level coincides with a threshold of $60-to-$70 cited by Saudi Arabian Oil Minister Ali al-Naimi earlier this year.
The world's leading oil exporter Saudi Arabia can balance its accounts with relatively modest income compared with other OPEC members, such as Nigeria and Venezuela.
Riyadh needs $62 a barrel next year to balance its external account, compared with $23 in 2000, according to data from Washington-based PFC Energy.
Venezuela's needs have surged from $34 a barrel in 2000 to $97 for next year.
Oil prices have averaged more than $105 a barrel so far this year, making it very unlikely Saudi Arabia will be unable to square its books.
FLOOR OF $100?
Even for Saudi Arabia, lower prices would cramp its style.
High oil prices have allowed the central banks of OPEC's more conservative members to increase their cash cushion against any future downturn and to build up huge sovereign wealth funds.
The Abu Dhabi Investment Authority (ADIA) in the United Arab Emirates is thought to be the world's largest sovereign fund, controlling assets of more than $800 billion.
As they become accustomed to such wealth, some analysts say OPEC could be tempted to try to keep prices above $100 a barrel.
"You may only need $60 but why would you leave $40 on the table?" said David Kirsch of PFC Energy.
"If you are making huge payments into a fund for future generations, why wouldn't you want to keep adding to this? This sets up a situation where if the cartel is going to defend its purchasing power, it has to start defending at or above $100 a barrel."
INFLATION
A commodities boom and labor shortage has driven up the cost of the huge array of infrastructure projects on which Saudi Arabia and other OPEC members are spending billions.
Inflation in the Gulf has also been fueled more generally by the weakness of the U.S. dollar, which has also weakened Gulf currencies that are pegged to it and has made imports more expensive.
Oil producers are walking a fine line as they boost spending at home, while looking to avoid flooding their economies and there are wide variations in the Gulf in how petrodollars are spent.
The UAE, a federation of seven emirates led by Abu Dhabi, gave federal government employees a 70 percent increase in wages this year.
Such spending patterns would be disastrous in Saudi Arabia, home to 25 million people and facing an unemployment rate of about 12 percent. Inflation in the kingdom hit a three-decade high in March.
"Saudi Arabia has had to be more prudent in its investments, careful to ensure they go toward creating jobs for the population," Citigroup economist Mushtaq Khan said.
"A lot of it is history -- huge budget deficits were not that long ago."
Below is a table showing the average U.S. oil price CLc1 needed by several OPEC countries to balance external accounts. All data from PFC Energy.
Members of the Organization of the Petroleum Exporting Countries (OPEC) have raised their traditionally conservative price assumptions, while still making generous allowance for the oil market to fall.
"At the rate they are growing their budgets, at 2013 the oil price break-even point will be $70 a barrel," said John Sfakianakis at SABB bank, HSBC's Saudi affiliate.
That level coincides with a threshold of $60-to-$70 cited by Saudi Arabian Oil Minister Ali al-Naimi earlier this year.
The world's leading oil exporter Saudi Arabia can balance its accounts with relatively modest income compared with other OPEC members, such as Nigeria and Venezuela.
Riyadh needs $62 a barrel next year to balance its external account, compared with $23 in 2000, according to data from Washington-based PFC Energy.
Venezuela's needs have surged from $34 a barrel in 2000 to $97 for next year.
Oil prices have averaged more than $105 a barrel so far this year, making it very unlikely Saudi Arabia will be unable to square its books.
FLOOR OF $100?
Even for Saudi Arabia, lower prices would cramp its style.
High oil prices have allowed the central banks of OPEC's more conservative members to increase their cash cushion against any future downturn and to build up huge sovereign wealth funds.
The Abu Dhabi Investment Authority (ADIA) in the United Arab Emirates is thought to be the world's largest sovereign fund, controlling assets of more than $800 billion.
As they become accustomed to such wealth, some analysts say OPEC could be tempted to try to keep prices above $100 a barrel.
"You may only need $60 but why would you leave $40 on the table?" said David Kirsch of PFC Energy.
"If you are making huge payments into a fund for future generations, why wouldn't you want to keep adding to this? This sets up a situation where if the cartel is going to defend its purchasing power, it has to start defending at or above $100 a barrel."
INFLATION
A commodities boom and labor shortage has driven up the cost of the huge array of infrastructure projects on which Saudi Arabia and other OPEC members are spending billions.
Inflation in the Gulf has also been fueled more generally by the weakness of the U.S. dollar, which has also weakened Gulf currencies that are pegged to it and has made imports more expensive.
Oil producers are walking a fine line as they boost spending at home, while looking to avoid flooding their economies and there are wide variations in the Gulf in how petrodollars are spent.
The UAE, a federation of seven emirates led by Abu Dhabi, gave federal government employees a 70 percent increase in wages this year.
Such spending patterns would be disastrous in Saudi Arabia, home to 25 million people and facing an unemployment rate of about 12 percent. Inflation in the kingdom hit a three-decade high in March.
"Saudi Arabia has had to be more prudent in its investments, careful to ensure they go toward creating jobs for the population," Citigroup economist Mushtaq Khan said.
"A lot of it is history -- huge budget deficits were not that long ago."
Below is a table showing the average U.S. oil price CLc1 needed by several OPEC countries to balance external accounts. All data from PFC Energy.
