* Saudi budget needs lower oil price than Iran, Russia
* Riyadh angered by Russian support for Syria's Assad
* Saudi oil exports up in June, may ease in July, August
By Richard Mably
LONDON, June 25 Saudi Arabia is showing no sign
of changing its policy of high oil output to support global
economic growth, despite a fall in crude prices below $90 a
barrel for the first time in 18 months.
Gulf and Western government sources in contact with Saudi
officials said the OPEC power can tolerate oil at $90 or below
for months, price levels that hurt Iran and Russia as they face
off against Riyadh over the conflict in Syria.
Saudi Arabia has a built up a revenue surplus in the first
half of the year and requires a much lower oil price to balance
its budget than most of its fellow OPEC members and leading
non-OPEC producer Russia.
"If we keep producing at roughly the same rate, we're not
flooding the market," said a senior oil official from a Gulf
producer. "And we want to act responsibly for the sake of the
Strong supporters of fellow Sunni Syrian rebels seeking to
oust Syrian President Bashar al-Assad, Saudi leaders have
criticised Russia for defending him.
With Iran, Russia is Syria's main ally, providing most of
its arms. Both Moscow and Tehran need crude at $115 a barrel to
meet budget requirements.
"Russia's economy is vulnerable to a sharp drop in oil
prices," said U.S. oil analyst Phil Verleger. "The Saudis may be
able to exploit that vulnerability by keeping production at 10
million barrels per day."
Industry sources say Saudi Arabia, the only oil producer
with significant spare capacity, looks set to trim output over
the next two months, but only because demand from refineries in
China and the United States will dip.
"We're told the Saudis are OK with lower prices, $90 or
below, for a few months," said a Western diplomat. "Even if they
have to trim back because of lower demand they don't give us the
impression they'll be bailing out OPEC on price any time soon,"
Crude is down from a March peak of $128 partly because the
economic outlook has darkened but also because Saudi Arabia,
pressed by major consumer countries, opened the taps in March to
a 30-year high of 10 million bpd.
That has made up for a slump in output from Iran because of
sanctions, not only drawing criticism from Tehran but others in
the Organization of the Petroleum Exporting Countries who prefer
higher prices including Algeria, Iraq and Venezuela.
As the group's main swing producer, Riyadh is largely
responsible for the extra volumes that have taken OPEC in excess
of its official 30 million bpd output ceiling.
OPEC ministers at a meeting in mid-June said they would
adhere to the collective limit, implying a 1.6 million bpd cut
from actual supply for 12 members of 31.5 million.
For that to happen Saudi Arabia would need to cut back
sharply. The prospects of that look slim.
Delegates who attended the OPEC meeting say Saudi Oil
Minister Ali al-Naimi quizzed his counterparts in the 12-member
cartel about what contribution they would be making to the cut.
"He went round one by one and there was silence -- no-one
was willing to volunteer a cut," said one delegate.
Asked if Saudi Arabia would be cutting back, an OPEC
delegate gave a one word answer: "No".
Unable to agree individual quota allocations under its
collective limit, OPEC has no way of policing output.
"It's highly dysfunctional because most of the countries
within OPEC have not been investing enough, so they have little
spare capacity. Saudi Arabia is the central bank of oil, much
more than it ever was, and that's the reality," said Leo Drollas
at the Centre for Global Energy Studies in London.
Underscoring its intentions around what Saudi oil minister
has called a "type of stimulus" for the world economy, Riyadh
increased its exports in June from May by about 150,000 bpd, an
industry source with knowledge of Saudi supply said.
Assuming steady Saudi domestic demand, that would push its
output close to 10 million bpd again in June after a dip in May
to 9.8 million.
Saudi exports will probably decline in July and August
though, an industry source said, because Chinese refinery
maintenance will cut its demand by about 350,000 bpd.
The closure for repairs of the new wing of the biggest U.S.
refinery, at Port Arthur in Texas, removes another 200,000 bpd
of demand. Again assuming steady Saudi domestic consumption,
that might mean production comes down to about 9.5 million.
Saudi has banked an oil revenue surplus in the first half of
the year to see it through leaner times.
"Gulf countries can put up with prices of under $90 because
during the first half of the year prices were over $100 so a lot
of profits have already been made over that period," said a Gulf
OPEC country official.
"So don't expect the Gulf countries to instantly turn off
supply just because the price goes under $90."
To date this year Saudi Arabia has earned a little over $155
billion from oil exports, according to Reuters calculations
based on an export price for Saudi crude of $114 on average.
Riyadh is estimated to need about $75-$80 a barrel to
balance its budget this year.
Drollas said the CGES calculated that if OPEC kept output at
current levels of about 31.5 million bpd, oil prices would fall
to an average $74 a barrel in the fourth quarter and $59 a
barrel in the first quarter of 2013.