Sustainable Oil Prices

[Doyle Johnson + 14]

If Saudi Arabia & Opec + Russia possess over 50% of the worlds oil reserves and currently produce about 46% of global production ( and they do) I think it is a fair statement to say "They Are In Control "  if they want to assert their position. Why produce & sell such a precious commodity at a loss or very low profit?  Makes no sense to me. KSA has said several times in the past that he will do whatever it takes  to keep supply & demand in balance. I think the latest round of Supply Build is a Fluke caused by Iran sanctions, Trumps waivers on said sanctions, & Trumps request of KSA to increase production to make up for said sanctions. If KSA + Putin are to keep their economies viable they will have to reduce supply to a level that will insure much higher prices. Do any of you more experienced see it any other way?  Would love to hear your opinion.

[Meredith Poor + 894]

One meaning of 'sustainable price' is what it costs to explore for and produce oil given the risks and cost of staying in business. This is the 'sustainable price' of the Permian Basin and generally speaking, economies where oil production is largely at arm's length from government interests.

The other meaning of 'sustainable price' is what it costs to explore for and produce oil plus keep the government 'in business'. This is the 'business model' of KSA, Iran, and to a lesser extent Russia. Now 'overhead' has to include defense, state security, a ruling family or oligarchy, and a nation-sized population of dependents. Product from these countries 'makes up the difference' of the shortfalls of 'normal' commercially produced oil.

Over time, this difference shrinks. As long as a Wall Street investor sees that 'some' oil can be sold at sufficient profit to prop up a government, the investor will deploy their assets to corral that income into their own account. Money continues to pour into US, offshore, and other western-style countries in the hope that the surplus cash flow headed to Russia and KSA can be diverted.

In one respect this is a fool's errand, since the global price is all the foreign countries can get, regardless of how much they want. As long as 'some' oil is produced at the direct cost of production, the price is governed by that cost, not the 'overhead' of the state apparatus.