Trends in real costs of crude oil production: The Middle East vs its competitors

The costs of oil production in the major areas of the world, including both OPEC and non-OPEC countries are discussed. The success of Saudi Arabia's policy of squeezing out non-OPEC oil by unilaterally cutting prices is assessed by examining the variation in costs of production within OPEC, between OPEC and non-OPEC producers, whether there are producing areas which are cost-constrained, whether non-OPEC development has been curbed, and whether lack of capital might constrain future production, especially in OPEC states. It is concluded that low prices have been only partially successful, because in most areas the full-cycle cost of new oil production is still less than the current oil price, even allowing for a 15% rate of return. Low prices have limited new oil development only in the North Sea, the U.S. and Canada, while Oman and Malaysia continue to expand. The pace of drilling has been affected by low prices, and net increases in non-OPEC output has been forestalled. 4 figs