$50 per barrel continues US oil boom, bankrupts Saudi Arabia

The U.S. oil boom at a $50 a barrel price continues to profitably accelerate, while Saudi Arabia oil production with an $80-85 a barrel break-even cost continues to shrivel.

Reuters reported a 2018 average wellhead break-even price of $40.95 for America's five top shale oil production regions of Eagle Ford, Bakken, Permian Midland, Permian Delaware, and Niobara.  Even adding a 10 percent corporate overhead cost, the break-even price of about $45 a barrel is still profitable on $50-a-barrel oil.

With the price of West Texas Intermediate averaging $64.90 per barrel in 2018 and $56.07 currently, the U.S. Energy Information Agency reported that American production hit an all-time high of 12.1 million barrels per day (b/d) last week.  EIA forecasts that the U.S. production average will grow to 12.4 million b/d in 2019 and 13.2 million b/d in 2020.

But according to the International Monetary Fund director of the Middle East and Central Asia department, Jihad Azour, that the 2019 per barrel break-even price Saudi Arabia needs to balance its budget is "around $80–$85."  Azour forecasts that with Riyadh planning to increase entitlement spending by $20 billion this year, its break-even cost will move higher. 

Saudi energy minister Khalid al-Falih disclosed in a news conference last month that Saudi Arabia had targeted production of 10.31 million b/d in January, but falling prices forced the kingdom to cut production to an average of 10.20 million b/d.  Standard & Poor's credit agency reported that Saudi officials revealed that production fell to 10.1 million b/d in February and is expected to go even lower in March.

IMF's Azour commented that the price of Brent crude oil plunged from an average about $110 b/d between 2010 to 2013 to about $50 over the last five years.  Saudi Arabia survived by increasing debt from 1.56 percent of GDP in 2014 to 19.39 percent in 2018.  But Azour warns that the kingdom will face a huge financial crisis by 2022 if the price of oil does not go up substantially or the kingdom does not slash entitlement spending.

But Saudi Arabia is in no position to implement severe austerity spending measures, because most citizens' standard of living is overwhelmingly due to government handouts.  The kingdom imports 70 percent of its food and does not produce military hardware, cars, refrigerators, civil airplanes, ships, or consumer and industrial goods.

Saudi Arabians tend to lack employable skills and are culturally not inclined to work.  Of the 30 million residents, only 5.5 million work, and 3 million work directly for the government.  The small private sector tends to employ only foreigners.

The Saudi monarchy delayed the financial crisis with Crown Prince Muhammad bin Salman's 15-month corruption crackdown that snared 200 princes and business moguls.  The government collected over $100 billion and has another 56 cases that have not yet been settled as of January, according to the Jerusalem Post.

Saudi Arabia planned to stimulate the economy by inviting foreign investment, but the murder of Jamal Khashoggi by Saudi intelligence agents inside the kingdom's Istanbul, Turkey consulate caused a huge human rights scandal.

Foreign direct investment plunged from $7.4 billion in 2016 to $1.4 billion in 2017, according to the U.N. World Investment Report 2018.  The 2018 figures are not available, but multinationals with operations in Saudi Arabia are rumored to be withdrawing cash.