Saudi Arabia is key for a production cut
It’s important to note that Saudi Arabia accounts for about 12.9% of the world’s total crude oil production. It accounts for about 31% of OPEC’s (Organization of the Petroleum Exporting Countries) production. It also accounts for the highest proved crude oil reserve after Venezuela, according to BP’s (BP) statistical review in 2014. From an economic point of view, Saudi Arabia’s cost of extraction is lower than other OPEC countries. Saudi Arabia’s cost of extraction is around $9.90 per barrel. It’s the second lowest after Kuwait. This implies that Saudi Arabia can risk oversupplying crude oil even if crude falls to $20. This gives Saudi Arabia supreme power. It’s the most important factor in the crude oil market. Other oil producers such as Iran and Russia (ERUS) have extraction costs of about $12.6 and $17.3 per barrel. The data were compiled by Rystad Energy. The data published in November 2015. The cost only includes operational and capital expenditure.
Again, OPEC’s war with US (SPY) shale oil producers was primarily responsible for lower crude oil prices. Saudi Arabia started the war because the US is an important market for it. The above graph shows the proved crude oil reserves for different OPEC members. The market share war already impacted the earnings of exploration and production companies such as Chevron (CVX), ExxonMobil (XOM), Anadarko Petroleum (APC), and others.
In the next part, we’ll discuss the impact of the dollar on crude oil.