Feb 25 (Reuters) - Investment bankers, oil executives,
analysts and officials kick off from Thursday discussions on
factors affecting oil prices, at a two-day workshop in Tokyo
organised by the International Energy Agency (IEA) and several
Japanese agencies.
The global economic recovery and the winding down of
government stimulus programmes are among the biggest tests for
the oil market, which experts will weigh at the meeting.
The debate over how speculation and fundamentals affect oil
prices continues to rumble, although it is less intense now that
crude <CLc1> has largely traded in a $70-$80 range since October,
versus the record high near $150 a barrel in July 2008.
[ID:nSGE61N012]
One reason for oil keeping its strength -- after falling
towards $30 in December 2008 -- has been a decision by the
Organization of the Petroleum Exporting Countries to keep its cut
of 4.2 million barrels per day (bpd) in production since
September 2008.
However, OPEC's compliance with the target has fallen from
historic highs of around 80 percent to around 60 percent now as
the oil price has steadied. OPEC next meets in Vienna on March 17
to reconsider policy.
MARGINAL COST
The marginal cost is how much producers have to pay to
extract more difficult oil, such as from the oil sands in Canada.
In line with the Saudi assessment of the marginal cost,
Iran's OPEC governor Mohammad Ali Khatibi said some high-cost oil
projects cost $70-$80 a barrel and if the price of oil continued
to fall, investors would withdraw from them.
Many projects have already been postponed.
London-based analysts Bernstein also put the marginal cost at
around $75-$80 a barrel for oil.
Increasingly, the cost of producing biofuels and nuclear
energy has also been taken into consideration.
A study by the Nuclear Energy Agency and the International
Energy Agency published in 2005 found nuclear energy was
competitive when oil cost $40-$45 a barrel.
Since then oil prices and electricity costs have risen
strongly and analysts estimated nuclear power was competitive
when oil was at $70 a barrel.
OPERATING COST
The cost of operating fields once they are already onstream
has been estimated to be around $50 a barrel.
BUDGET ASSUMPTIONS
Oil-producing nations have historically assumed very
conservative prices for a barrel of oil when setting budgets,
allowing for some slack in their spending should prices fall.
The price of oil averaged nearly $100 in 2008 and averaged
around $62 in 2009.
Data from Washington-based PFC Energy last year showed Saudi
Arabia needing oil prices to average $51 a barrel to break even,
compared with $43 a barrel in 2008.
OIL COMPANY ASSUMPTIONS
Like oil-producing countries, international oil companies
also make price assumptions that underpin their production
sharing contracts with governments around the world and are used
when assessing projects.
Total <TOTF.PA> has said it based its projects on oil at $80
a barrel. BP'S <BP.L> oil price assumption is between $60 and $90
a barrel.
FAIR VALUE
Fair value is a notional price taking into account only
supply and demand, cutting out any speculative element.
It ignores factors such as the danger of conflict in
oil-producing nations, currency effects and fund flows in and out
of oil.
Estimates of what is the fair value of oil abound, but some
players have said a fair price would be closer to $75 a barrel.
OPEC ministers in the past repeatedly said prices were
inflated by speculation and that the price slide from a record
hit in July 2008 in part reflected the departure of speculators.
INFLATION-ADJUSTED
In inflation-adjusted terms, the July 2008's record price was
well above the previous record high of $105.95 set in April 1980,
after the Iranian Revolution in 1979.
That level was first breached in March 2008, according to the
International Energy Agency (IEA). It bases its calculation on
monthly prompt U.S. crude and U.S. consumer price data as U.S.
futures trade did not exist in 1980.
BENCHMARK
The price of U.S. light sweet crude is a benchmark used for
pricing other crudes. North Sea Brent futures <LCOc1> are the
other main international marker.
The most expensive crudes in the world, notably Nigeria's
Pennington or Malaysian Tapis, command a premium to the
benchmarks as they have low sulphur content, making them easy to
refine to produce high yields of gasoline and other light fuels.
At the other end of the scale, heavy Iranian crudes Soroush
and Norouz are sold at steep discounts to Brent crude.
To see a TABLE on the oil price OPEC members need please
click on [ID:nLDE5BG18P]
(Compiled by Barbara Lewis, Simon Webb and Tokyo Energy Desk;
Editing by Ramthan Hussain)
((barbara.lewis@reuters.com +44 20 7542 2637; Reuters Messaging:
barbara.lewis.reuters.com@reuters.net))
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