Oil finds new US$100 floor on Saudi politics, output costs

With oil also finding support from a return to stronger global economic growth, crude markets may have a more lasting justification for price strength than Arab world unrest.

The US$100 floor for Brent crude compares to the US$75 a barrel “fair price” for producers and consumers identified at the end of 2008 by leading OPEC nation Saudi Arabia.

For a while that served as a guide to markets of when Saudi Arabia, as effective head of the Organization of the Petroleum Countries, might alter supply to manage prices.

Even late last year, before rebellion in Libya saw prices rocket to a two-and-a-half-year high of US$120 a barrel, OPEC was finding reasons why it should not try to anchor prices at US$75.

Brent last traded below US$100 on Feb. 8 and was above US$119 on Monday, taking its year-to-date average for 2011 to almost US$106 a barrel, ahead of 2008's record annual average of US$98.52.

Unrest across the Middle East means Saudi Arabia's focus is no longer on the need to moderate prices to shore up long-term demand and appease the world's biggest oil consumer the United States.

Its attention is on issues closer to home — countering unrest among the Shiite minority that populate the oil-producing Eastern Province.

“It seems clear that Saudi, and therefore OPEC, priorities have now changed as a result of the events of the past few months,” said Chris Weafer, chief strategist at Moscow's Uralsib investment bank.

As it strives to stifle trouble, Saudi King Abdullah last month offered US$93 billion in handouts.

Weafer estimates Saudi Arabia now needs close to US$100 a barrel to balance its budget.

While that is at the top end of a wide range of estimates, there is broad agreement that Riyadh's oil price aspirations are flexible.

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