Arab Spring will impact oil prices in the long term
CGES ANALYSTS | AUGUST 2011 | SOURCE: Monthly Oil Report
Oil prices have once again become an economic liability, but it is not clear how much room there is for them to fall, given the rising demands of oil‐producing nations.
Attempts to avert the spread of popular unrest that has swept neighbouring countries have led oil‐producing countries to pour billions of additional dollars into social spending, raising the oil price that they need to cover this expenditure.
The OPEC Basket price needed by Saudi Arabia to cover its planned expenditure in 2011 is calculated by the CGES to be around $90/bbl; other OPEC member‐countries need even higher prices.
The inexorable rise in the break‐even oil price needed by OPEC member‐countries is becoming a concern.
In 2008, when the OPEC Basket price averaged $94/bbl, crude oil costs accounted for just over 5% of global GDP. However at Saudi Arabia’s break‐even price of $59/bbl that year they would have accounted for just 3.3%, leaving plenty of room for the Kingdom to tolerate the lower oil prices that the global economy needed.
Three years on, however, the picture is very different. At Saudi Arabia’s 2011 break‐even price of $90/bbl, crude oil costs would account for 4.4% of expected global GDP, leaving much less room for manoeuvre.
The revenue needs of OPEC producers are now pushing oil costs to levels that the global economy cannot tolerate.
Either producers need to reduce their breakeven prices, or consumers need to move rapidly to curtail their oil use. The alternative is a global economy that will continue to lurch from crisis to crisis.
Related article: Saudi Arabia's target oil price in 2011
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