| LONDON, June 25
LONDON, June 25 Oil's fall below the $100 a
barrel favoured by OPEC exposes the deepening divide between
countries in the group better able to cope with a lower price
and those most hurt by it, making collective action to halt any
further price slide harder.
The price of oil dropped below $100 this week from a
2013 high of $119.17 in February, pressured by lacklustre demand
and ample supply. While a sustained sub-$100 Brent is bearable
for Saudi Arabia, it puts a strain on others such as Iran.
There is no immediate prospect of the Organization of the
Petroleum Exporting Countries cutting supply to boost the price,
not least because top producer Saudi Arabia - which would lead
any cutback - has financial reserves that will help it endure
oil at $80 or $90.
"Oil at $80 would cause concern with OPEC members outside
the Gulf," said a senior OPEC delegate who requested anonymity.
"But there won't be a quick response from Gulf producers who
have built up surplus financial reserves over the past few
Others including Iran, Venezuela and Algeria need far higher
prices to make their budget targets, and are least able to offer
output cuts. The widening division over members' breakeven oil
prices will make a coordinated response harder.
"To have some OPEC discipline is going to be very difficult
because everybody for now will want Saudi Arabia to do the job
(of cutting production) by itself," said Olivier Jakob of
consultants Petromatrix in Zug, Switzerland.
"And if Saudi Arabia does not want to do the job alone, then
it needs to let the price drop to force the others to also come
OPEC last took united action to prop up prices in 2008
during the financial crisis. Some oil market forecasts indicate
that rising supplies of U.S. shale will reduce demand for OPEC
oil which could mean cuts are needed down the road.
To an extent, all 12 OPEC members need a robust oil price as
crude oil is a major source of government revenue. High
production and high prices saw the group that pumps a third of
the world's oil record revenue of $1 trillion last year.
Exporters are generally coming to rely on higher prices per
barrel to counter pressures including rising populations,
stagnant oil output, increased social spending to head off Arab
Spring-type protests and infrastructure investment.
But the oil price below which an exporting country faces
trouble differs widely based both on its budget commitments and
the cost of oil production.
Saudi Arabia and fellow Arab Gulf producers Kuwait, the
United Arab Emirates and Qatar have greater capacity to handle
lower prices. Estimates for Saudi Arabia's breakeven price vary
from $85 to $95, depending on projections for its spending.
After pumping 10 million bpd with oil at $110 last year and
9 million barrels per day (bpd) with oil at above $100 this
year, Saudi Arabia has built up formidable financial reserves,
estimated at over $650 billion.
OPEC met last month and agreed to retain its official 30
million bpd production for the rest of the year - making it
unlikely the group will make any formal adjustment to supply.
If the time comes for OPEC to scale back production, Riyadh
is likely to seek assistance from other members - primarily
Iraq, which has ramped up its output in recent years.
According to an analysis by Petroleum Finance Co., Saudi
Arabia and Iraq need similar prices in order for their current
accounts to break even. But Saudi would be better able to
withstand a drop due to its foreign exchange reserves and
ability to borrow.
Iran is the most at risk as its crude oil exports have more
than halved over the past 18 months to around 1 million bpd due
to U.S. and European sanctions over its nuclear work.
Tehran needs an oil price of $140 in 2013 to balance the
books, according to the International Monetary Fund, the highest
among the OPEC members it provided figures for and much higher
than $84.50 for Saudi Arabia.
"Iran's domestic budget is almost out of control and the
cost of doing business with the outside world is rising," said
Mehdi Varzi, a former Iranian oil official who now runs an
energy consultancy in the UK.
"It's very expensive to run the economy and the squeeze will
(Editing by Peter Graff)