A storm in oil prices has led since the summer of 2014 to a state of terror dominated the markets , and the Oil prices have lost around 70% of its value, and it was the largest share of this shock for the producing countries with high production cost, and this cost is a measure of the sensitivity of the producing countries of the oil crisis , which is still hanging over the markets.
But we can understand the relationship between the cost of production and global prices and their impact on the producing countries, we must recognize the productivity cost of producing countries, and what are the factors that determine the cost of production of any oil field ? What are the implications of the disparity between the cost of production and the price of a barrel of oil in the global markets?
The price of a barrel of oil varies depending on the producing countries, where the cost of production depends on a number of factors that affect the cost of production per barrel of oil.
the cost of production depends over the need of the producing state of the raw material , depending on the capital and operating cost of producing for one barrel of it.
Here , it must be stressed that the cost of production is one of the most important factors affecting the price, if we want to compare the cost of production of oil prices in two different altogether , we note that the cost of extracting the Arab oil is relatively cheap compared to other places such as Canada or the United States of America, and prices tend to rise if the all oil cheap sources are exhausted and did not remain just and only the most expensive sources.
The operational production costs include the costs of those related to the operations of the pumping of oil from the fields and the maintenance and the salaries of the workforce, experts and transportation of oil, while the costs capitalism is the costs relating to the operations of exploration and drilling, processing and construction of facilities and pipelines and equipments .
According to the experts , we can not determine the cost of a added barrel without having the real numbers included the developing plan of the explored field or the expansion of the energy of the product field , including the amounts and the production of barrels of oil . There are other accounts of associated gas, as well as the basic capital costs and operational costs are associated with each period of operations that has been spent for it.
It should be noted that the costs vary from one field to another, and can say here that the geographical nature are the most important elements that have influence on the cost of oil production, where we note the the huge wild fields such as “guar” field in Saudi Arabia or the “Burgan” field in Kuwait , are far from the rates described below while the cost of production in the offshore of the shallow water is more, but fields costs in deep water , as the case in the Gulf of Mexico and fields in Brazil and West Africa are very high.
According to competent reports that it despite the decline in the investment costs for the production of oil in the “OPEC” countries than outside the organization, but the political and security conditions in the Middle East have made the total cost of the oil investments in most OPEC countries , but in the whole world much larger than ever before.
The extraction cost is increased wherever the extraction was extended to the stocks or reserves which are less quality or purity .
According to recent studies, the total cost to produce one barrel of British oil , the operational cost of it constitute to $ 30.72 , and capital expenditures 21.78 dollars a barrel , and the overall cost of $ 52.5, while the lowest cost of production is the Kuwaiti oil which is amount up to $ 8.5 per barrel.
The barrel of Saudi oil, stands at a total cost of $ 9.9, including a capital of $ 4.5 and 5.4 operating expenses of the expenses, while the cost of a barrel of Iraqi oil of $ 10.7 ( US $ 5.6 capital expenditures and $ 5.1 operating expenses), followed by the UAE ‘s oil, which the cost of producing a barrel of it is up to $ 12.3, of which US $ 6.6 capital expenditures, and $ 5.7 operational expenses.
while we note that the members countries of OPEC , such as Nigeria, Libya and Venezuela , are with the highest total cost for the production of crude oil . Total cost of production in Nigeria amounting to $ 31.6 per barrel, and in Libya , amounting to $ 23.80 a barrel, and in Algeria the cost is $ 23.50 per barrel.
It is worth noting that the cost of Iraqi oil extraction is low , despite the presence of many of the political and security challenges that increase investment costs in Iraq ‘s oil sector , but the annual budgets were adopted on the basis of a high price for that Iraq faced a big deficit in the annual budgets due to the significant decline in oil prices, Iraq still faces significant challenges as a result of the financial crisis affecting the country and the confrontations with al Daash and the attendant crisis of displaced people .
if we think of the productivity cost for a number of producing countries , we will notice that it has incurred of huge losses, as it is evident in the figure above , currently there are countries sell a barrel of oil in less than the cost of production when the price of oil in the world markets compared to the actual cost of production per barrel and the UK is on the top of the list, and the number is expected to increase as prices are falling, not to mention the foreign obligations such as loans and bank transactions, which , as we mentioned earlier was the cause of the collapse of dozens of companies, and these losses continue amid fears that the oversupply in the market continue to more time than expected.
We refer here to the collapse of oil prices and the drop dramatically to $ 27 a barrel earlier this year, has led to huge losses for producers, but to varying degrees, noting that the oil companies which have been of high cost are the most affected ones , simply because the sale of a barrel of oil price did not cover the cost of production, which is what we have observed during the period the erosion of oil prices to less than $ 50 a barrel, so to the dozens of oil and gas companies have been forced to declare its bankruptcy and suffered losses of hundreds of millions in North America after reaching the combined debt of more than $ 14.1 billion and here we mention, for example , US drilling company for oil and gas “Magnum Hunter Resources Inc. the losses of the ” assets of British oil companies also amounted to more than 10 billion pounds.
According to the reports , the international companies have decreased its capital spending by 25% in 2015 and it is expected to cut its capital spending to another 25% by 2016 and that by reducing the budgets for drilling and exploration , and stop some of the projects which have become useless.
The impact of the decline of prices was not limited to the states of high extractive cost, but included OPEC countries its budgets are affected and incurred heavy losses, and a lot of these countries proceeded to follow the austerity and directed plans , there are countries such as Iraq and Venezuela, rentier states which are mostly dependent on oil and they are on the verge of economic collapse because of the decline of oil revenues dramatically.
Despite the huge losses , which affected producers and companies operating in the oil sector , but the fierce competition between producers led to extend the life of the crisis, there are countries , defend its market share hurt by the huge supply of oil in the markets, which surpassed the 94 million barrels per day and is trying to bring some kind of balance in the oil market, in contrast there are major industrial countries which took from booming of the oil prices , which hit US $ 115 a barrel on the stage, and took the extraction of oil of higher costs, which was feasible in those phase, which are of course countries have advanced technology and huge capital and thus doubling the global supply of oil and the demand is fallen due to the abundance and these are the most important reasons that led to the decline in oil prices to these levels.
A few days that separate us from producers meeting in the Qatari capital Doha to discuss the decision to freeze production It included OPEC countries and Russia, and despite opposition from Iran to this decision , but many countries within the Organization demand to reduce production to stop the bleeding of the financial losses as a result to the low price of a oil barrel , but the fact is that this tension will continue in the current year and may extend to the beginning of the year 2017, and it is subject to many of the data such as the decline in oil supply and improvement of the global economy and the recovery of the Chinese economy, and many of the data that affect the price of oil, which will make markets to wait for another year.
Rawabet Research and Strategic Studies Center