Why the Saudis want $100-a-barrel oil

In 2008, Saudi Arabia’s King Abdullah called $75-a-barrel oil a “fair price.” But the price of fairness seems to be rising fast: According to the Financial Times, the Saudis now prefer to keep oil prices at about $100 per barrel. What’s changed?


Nice to meet you, but don’t expect cheap oil. (Saudi Press Agency via Reuters)

It’s not just the Saudis, either. A 2011 report from the International Monetary Fund found that the “break-even” point for the world’s major oil producers has been rising at a shocking rate. Russia now needs crude prices at roughly $110 per barrel to shore up its finances. Iraq, Bahrain, Algeria, Iran and the United Arab Emirates all need prices between $80 and $100 per barrel. The lone exceptions, Qatar and Kuwait, can skate by with moderately lower prices, but even those countries have seen their break-even points creep upward in recent years.

It’s always risky to guess where oil prices are heading, but it’s notable that countries like Saudi Arabia have ample reason to try and keep prices high, even though the global economy’s still weak and demand is slackening thanks to slowdowns in Europe and China. The key question here is whether the Saudis actually has the ability to “target” prices in this fashion — a few OPEC members can try to shore up prices by curtailing production, the way they did after the financial crisis, though there’s always the possibility that members will cheat.

Either way, as detailed in this post over the weekend, as long as the United States remains so reliant on gasoline, persistently high prices are likely to bite into growth and dampen the nascent economic recovery we’re now seeing.

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