OPEC: Why oil prices must go higher
Posted: Tue Aug 01, 2017 12:49 pm
OPEC no longer low-cost producer. OPEC is struggling to hold onto market share while also attempting to boost prices. Everyone seems to agree that if OPEC really wanted to drive U.S. shale out of business, it would have to pump full-tilt and let prices crash for an extended period of time. That might have worked in the past, but OPEC members are no longer strong enough financially to survive a lengthy downturn. That’s because public spending needs have skyrocketed since the Arab Spring. For example, according to the WSJ, the UAE can produce oil for $12 per barrel, but really needs oil prices at $67 per barrel to cover its budget. The story is similar for many Gulf Arab countries, as spending needs have spiked in response to an increasingly restless and restive population. The upshot is that OPEC is not willing or capable of enduring another price downturn.
OPEC to meet on August 7-8 for follow up on faltering compliance. OPEC issued a statement saying that its representatives will meet next week to discuss why countries are falling short on their production cuts. Some countries, such as Iraq, dispute the data, arguing that they are indeed complying fully with their obligations. Still, Saudi Arabia said last week that it would step up the pressure on its peers to cut deeper. Kuwait and the UAE have since promised to redouble their efforts and boost compliance. Meanwhile, a Reuters survey estimates OPEC production actually rose in July by 90,000 bpd, putting the group’s collective output at a 2017 high.
Saudi Arabia considering tax for Aramco. Bloomberg reported that Saudi Arabia is considering a new tax system for Aramco ahead of its IPO. The proposal would increase taxes on the company when oil prices rise, a move that would replace the existing fixed royalty system. The variable rate could help raise more revenue for the government if oil prices rise, although it would certainly be frowned upon by investors eyeing the Aramco IPO.
OPEC to meet on August 7-8 for follow up on faltering compliance. OPEC issued a statement saying that its representatives will meet next week to discuss why countries are falling short on their production cuts. Some countries, such as Iraq, dispute the data, arguing that they are indeed complying fully with their obligations. Still, Saudi Arabia said last week that it would step up the pressure on its peers to cut deeper. Kuwait and the UAE have since promised to redouble their efforts and boost compliance. Meanwhile, a Reuters survey estimates OPEC production actually rose in July by 90,000 bpd, putting the group’s collective output at a 2017 high.
Saudi Arabia considering tax for Aramco. Bloomberg reported that Saudi Arabia is considering a new tax system for Aramco ahead of its IPO. The proposal would increase taxes on the company when oil prices rise, a move that would replace the existing fixed royalty system. The variable rate could help raise more revenue for the government if oil prices rise, although it would certainly be frowned upon by investors eyeing the Aramco IPO.