Former Saudi Aramco official says $100 a barrel for oil is fair price

19 January 2012

Continued high cost of investment in hydrocarbons makes $100 more like floor price, says Sadad al-Husseini

Saudi Aramco’s former head of exploration and production Sadad al-Husseini says the Saudi Arabian oil minister set a “conservative figure” when he said a fair price for oil would be $100 a barrel.

The comments come after Oil Minister Ali al-Naimi’s statement saying he wanted oil prices to remain in triple figures (MEED17:1:11).

Al-Husseini believes the cost of producing oil and shipping it around the world now meant the days of cheap oil are over.

“Much has been made of the oil minister’s comments, but I think he is being more than reasonable by quoting $100 as a fair price for oil,” says Al-Husseini. “When you look at how much oil costs to produce, as well as the continuing investments being made by [Saudi] Aramco, then to me $100 is more like a floor price.”

Al-Husseini pointed out that the massive capital expenditure required for any new projects, coupled with the incremental costs accrued in research and development, meant that oil prices need to be high to justify the outlay.

The official also says the massive government spending initiated by Riyadh on infrastructure projects also means more petrodollars are required to pay for it all.

“Of course, the whole of the kingdom is now undergoing change with a world-class infrastructure being put in place,” says al-Husseini. “Installing this kind of infrastructure is not cheap.”

The Middle East projects tracker MEED Projects says there are about $380bn-worth of projects in infrastructure, and power and water currently either under execution or at the planning, design or tender stage.   

The former Aramco official does believe there will be no oil price spikes in 2012, as global heads of government will try to keep incidents to a minimum to protect growth.

“There may be the occasional threat, such as Iran, but no one is seriously going to be looking for incidents that trigger significant increases in prices in 2012,” says Al-Husseini.       

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