'Sweet spot' needed for fair oil price

Hydrocarbon producers and consumers should seek a “sweet spot” that will bring them closer to agreement on a fair oil price, which can not be displayed by dysfunctional market, according to a prominent Arab energy analyst.

Ali Aissaoui, senior consultant at the Saudi-based Arab Petroleum Investment Corporation (Apicorp), said fair crude prices should take into consideration the feasibility of upstream oil projects and the financing needs of producers.

In a study presented at an event marking OPEC’s 50th year held in Riyadh this week, Aissaoui argued that the 12 members of the Organization of Petroleum Exporting Countries are much more vulnerable to low crude prices than major consumers are to high oil prices.

He also said that a cumulative amount of some 1,100 billion barrels of oil has already been produced at a cost of less than $30 a barrel in 2009 prices, adding that the economic cost of exploiting remaining conventional oil is still below $30 a barrel in the Middle East and North Africa region.

“A suitable solution may reside into oil prices finding a ‘sweet spot’…at the heart of the matter is the duality between petroleum exporting counties and energy importing countries,” he said in the study, sent to Emirates 24/7

“OPEC members are far more vulnerable to low oil prices than the IEA members are to high oil prices. However, importing developing countries, whose fiscal mitigation capacity is limited, suffer the distributional effects of oil prices”

According to Aissaoui, an Algerian, a sweet spot range for oil prices should be the one that: allows for the development of “frontier oil projects”, ensures oil-producing countries fiscal sustainability  and does not affect adversely economically-vulnerable countries.

“Permeation of ethics into the discourse about oil prices is not only a consequence of market failure. Fairness has emerged as a key motivator in economic decisions and a genuine concern for the effect of prices,” he said.

“From the oil producers’ perspective, a fair price should lie at the confluence of upstream projects viability and fiscal sustainability….fairness would further dictate that the impact on the most economically vulnerable energy-importing countries be less adverse,” he added.

“OPEC should take the ethical lead in defining boundaries of tolerable market behavior and use its market power to keep to a sweet spot.”

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