A license to Drill (for Dollars): It Only Costs 10 bucks a Barrel For Saudis To extract Oil

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The abundance of crude oil and the extensive presence of modern means to extract and produce oil are so favorable for Saudi Arabia that their delivery cost of a barrel is only $10. Meanwhile, for the U.S. and Canada, the comparable number is about $35, with some producers cutting back their activities when crude drops below $40.

The $40 threshold is important. The price per barrel is $68 and falling after brisk global demand had kept prices above $70 for the last year. Now, though, oil production, especially in the U.S. has become more abundant, with December marking the most produced in a month than any nation in history.

The other factor keeping prices low is the slowdown in China’s economy. The world’s largest nation by population remains the largest crude importer, but its economy is hobbled by several issues, including a real estate crisis.

Saudis will win?
While some analysts think the Saudi breakeven number will rise because of the country’s huge infrastructure projects, it will not rocket to a level anywhere near the U.S. That means the Saudis can best most of the world in a price war — and one may be coming if fuel costs contract even more.

Such a confrontation will be about who will be the dominant crude suppliers, with making money via market share as the long-term game. If the Saudis can push prices below America’s $35 threshold, they win for now.