Oil producers from Saudi Arabia in control of 13% of oil production and the vast majority of reserve capacity. In the last year, when falling oil price, they sought to maintain market share and to avoid repeating the experience of the 1980s, then they had to reduce oil production by 70% in order to defend high prices. Perhaps, at current prices Saudi producers consider that you have succeeded, having pushed out of the market by new competitors, and will begin to support prices, say analysts at Credit Suisse in the review “the Importance of oil”, released on 7 October.
Saudi Arabia is the target of its price war us producers of shale oil. For them, the break-even point, according to Moody’s calculations, is about $51 per barrel. Fixed costs for shale producers is significantly higher than variables, and close the production is easier than to experience a period of low oil prices, analysts at Credit Suisse explain. In addition, unlike other oil exporters U.S. could not compensate for the change in the price of oil parallel the weakening of currencies (the dollar, in contrast to the ruble falls after oil prices), they remind.
The Saudis may be concerned about the budget deficit, which is due to low oil prices in 2015 amounted to 20% of GDP. Public debt of Saudi Arabia is still very low and is about 1% of GDP, but SAMA, who plays the role of the Central Bank, this year began to sell its reserves, and the country for the first time since 2007 has placed the issue of sovereign bond that could be seen as “signs of stress”, says the review. The fallout of the Arab spring has increased social spending, and armed conflict with Yemen, which, according to the International Institute for strategic studies, country for six months could spend $1 billion, restrict the ability of Saudi Arabia to reduce budget spending, analysts remind.
There are other reasons, which won’t allow oil prices to fall below, say analysts at Credit Suisse. They point to signs of stabilization in the supply of oil from countries outside OPEC. According to the Administration the energy information administration (EAI), in the fourth quarter of this year growth of production in countries outside OPEC, will not exceed in annual terms, growth in oil demand. In the past three years, supply growth from producers from countries outside OPEC, two times faster than the growth in global demand.
Demand increases, says the review. According to the forecasts of EAI, the growth of world oil consumption in the first half of 2016 will be 1.5% versus 1.1% growth this year. Given the decline in production of oil, reduce the effect of overproduction that is currently observed in the market, says the review.
Analysts note several factors: oil is now more oversold than it was in 1985, when Saudi Arabia started to regulate prices; moreover, speculative positions, the number of which peak in may, has declined, again is becoming more.