Quote:
Originally Posted by Locke
Well, on the surface that could be correct, but realistically what is the benefit in flooding the market that has surplus supply already at a ridiculously low price?
Sure, its dollars coming in the door, but are those dollars profit? If the price is low it makes more sense to hold back and wait until it comes up so you can maximize the benefit of your resource.
Its the same mistake the Saudis are making. "Flood the market and gain marketshare!!!"
Great. Lots of people are buying what you're selling, just at rock-bottom prices. So you're selling lots of stuff, just not making much while you're at it.
Congratulations?
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For both Iran and the Saudis, yes it is operating profit (as in revenue minus opex). Extraction costs for both are ridiculously low.
However the difference between the two is that for Iran it literally is found money. They've been living for a while and building budgets on essentially zero oil revenue. So any extra dollars coming in the door increases their standard of living. Their old budgets effectively break even at opex (say, $5).
Saudi on the other hand has been living off of their insane oil profits to maintain a higher standard of living. It's not their operations that break even at $120 or whatever, it is their
budget that breaks even at $120. Their operations probably break even at like $5. So at these low low prices their standard of living is taking a huge hit, or at least will take a huge hit when they get sick of burning a hole in their $700B sovereign wealth fund.