Huffington Post’s resident Saudi-basher pops off again, and again with little fact to support his arguments. Learsy argues that because costs of lifting a barrel of oil in Saudi Arabia are so low (he quotes a 1999 figure of $1.50/bbl; the current price is twice that), OPEC is making obscene profits on the back of the American oil consumer.

Lifting costs for certain Saudi oils is among the lowest costs in the world, but not all Saudi oil and particularly not all OPEC oil. Iranian production, for instance, has a competitive cost benefit only because it has lower (than American) labor costs, not because it’s actually easy to cheap to lift that barrel. This is even more the case for countries like Venezuela or Nigeria. All three countries (along with Libya) are known as ‘price hawks’ within OPEC; Saudi Arabia is the leading ‘dove’. It has consistently, throughout the history of OPEC, fought for moderation in the price of oil.

Ignored in his argument are the costs of shipping oil. The six-week trip of a tanker from Saudi Arabia to a US port in the Gulf of Mexico is easily three times that of Venezuelan oil, for instance. Mexican and Canadian oil (the number one and number three exporters to the US) don’t even need ships for most of their transport: they use pipelines.

Ultimately, he ignores the fact that countries that produce a product have very different (but equally legitimate) interests. One seeks high prices for perfectly logical reasons; the other seeks the lowest price. If Saudi oil were overpriced on the market, it would not sell. That’s the way the market works; that’s the reification of the law of supply and demand.

But in a world where fantasies about economics seem to dominate the political argument, I guess Learsy is at least mainstream liberal.

While The World’s Economies Are Reeling OPEC Wants Us To Pay More For Oil
Raymond J. Learsy

In November of 1999, in a speech to the Houston Oil Forum, Saudi Oil Minister Ali al-Naimi bragged that the “all inclusive” cost to the Saudis to produce a barrel of oil was less than $1.50 a barrel. Costing $1.50 then you can make your own extrapolation as to what it may cost today. My estimation is is less than three dollars today, and probably a lot less. My reason for putting forward this tidbit of information is to give one a comparative benchmark of production costs of other OPEC member states be it Libya, Kuwait, Iran, Algeria, etc. All would be comparable to Saudi production costs. As to the argument that todays oil price reflects a rapidly declining resource, this post has long argued that OPEC’s and especially Saudi Arabia’s reserrves have been purposely understated and are vastly greater than we have been led to believe (among other posts please see “Peak Oil” RIP. Official Obit Front-paged In the New York Times” 3.8.07)

With the current rout of speculators pulling in their horns from the commodity markets and the economy’s impact on oil and oil product consumption, and finally the growing and widespread realization of the enviromental and national security dangers inherent in fossil fuel consumption, the price of oil is collapsing. Or is it?
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