Even if international crude oil prices plummet to $20 per barrel, five major Middle Eastern oil-producing nations - Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Iran, and Iraq - could possibly still break even, continuing to expand supply and potentially emerge as the ultimate winners in the global oil market.
According to agency estimates, crude oil prices need only reach $20 to $26 per barrel for these five Middle Eastern OPEC member countries to achieve a breakeven point. Their average breakeven price is $24 per barrel, approximately 70% lower than this week's Brent crude oil futures trading price of around $79.
Due to the incredibly low production costs in these countries, they can easily undermine large-scale oil projects developed in Latin America by energy giants such as ExxonMobil. Compared to U.S. shale oil producers who have increased production in recent years, these countries have more robust economic strength.
Last year, these five nations produced a total of 23.4 million barrels per day, accounting for 23% of the world's total supply. In addition to the benefit of super-low costs, these countries have abundant oil resources. Their combined proven oil reserves amount to 833 billion barrels, comprising 54% of the world's total proven reserves.
Saudi Arabia, for example, has a maximum production capacity of 12 million barrels per day, and its state-owned company Saudi Aramco has proven oil reserves of 267 billion barrels. This implies that Saudi Aramco can produce at full throttle for over 60 years. The UAE's proven reserves could support the country to produce at maximum capacity for almost a century.
Media reports point out that all five countries are expanding their capacities. Projected from their new production targets, by 2040, their combined production capacity could increase by 5.3 million barrels per day. Saudi Arabia and the UAE will experience the largest increases - by 2027, the sustainable oil production capacity of these two nations, without depleting the oil reserves, could increase by a total of 1.8 million barrels per day.
Commentators claim that the global shift from fossil fuels to clean energy is already undermining oil demand, with marginal projects bearing the brunt of the impact. Deep-water oil projects on greenfield sites and Canadian oil sands will become even more vulnerable. Middle Eastern oil-producing nations, thanks to their ultra-low costs, are likely to emerge as the ultimate survivors.
Previously, Wall Street Journal reported that after Saudi Arabia and Russia both announced increased production cuts two weeks ago, international crude oil achieved its largest weekly gain in three months, for the first time exceeding a 4% weekly increase since April 6.
As of last week, oil prices had risen for three consecutive weeks. Production cuts by Saudi Arabia and other OPEC+ countries are generally viewed as the main driving force behind the rise in oil prices. Last Tuesday, the International Energy Agency (IEA) said that oil market supply is expected to tighten in the second half of this year due to strong demand from China and other developing countries, coupled with recent supply reductions announced by Saudi Arabia and Russia. The U.S. Energy Information Administration's (EIA) monthly report on Tuesday believes that due to OPEC+'s production cuts, global oil supply will decrease over the next five quarters.
On Thursday, international crude oil briefly dipped during early U.S. trading but quickly bounced back. Despite last week's drop in U.S. EIA crude oil inventory and recent robust Chinese crude oil imports supporting higher oil prices, investors remain cautious due to a potentially weaker demand outlook.
Citigroup analysts predict that given the mixed global demand outlook, oil prices may struggle to find a clear direction in the near future. However, following Saudi Arabia's production cuts and geopolitical risks bolstering demand, Brent crude, which fluctuated between $72 and $78 in May and June, has already broken through this range this month.