GCC breakeven oil price declines

Zawya: Saudi Arabia and the UAE’s breakeven oil prices have fallen for the first time in the past few years, according to Deutsche Bank’s calculations.

This is great news for these two key Gulf producers who remain worried on two key counts: (1) over the past few years they have needed high oil prices to balance their books and; (2) the high price of oil makes offshore, Arctic and oilsands projects economically feasible for their crude rivals Venezuela, Russia and Canada.

“The average breakeven price in GCC countries will edge down to about USD 80 barrels this year, the first drop since 2003,” wrote Deutsche Bank’s Robert Burgess in a note to clients.

“The improvement in breakevens is limited to Saudi Arabia and UAE, however, where some of the large one-off increases in spending that pushed up breakevens last year are set to be unwound this year. Elsewhere in the GCC, increases in recurrent spending, partly in response to the Arab Spring, will see breakeven prices continue to edge upwards.”

Saudi Arabia’s breakeven price has fallen from USD82.2 to USD78.4, while the UAE’s is more pronounced from USD99.1 to USD90, as fiscal pressures ease in both countries.

The lower breakeven prices give Saudi Arabia some leeway in pushing prices down and wrestle the emerging Iran-Iraq bloc within Opec. While anecdotal evidence suggests Iraq’s breakeven oil price is low, Iran traditionally favours much higher prices to balance its budget.

A lower breakeven price also strengthens Saudi Arabia’s hand arsenal especially as it goes through a testy period after the death of Saudi Crown Prince Nayef bin Abdul Aziz.