petrol at 7p per litre

[Budgie]

i've just come back from a trip to saudi arabia.

Petrol there is only 1 riyal for 2 litres. That works out at about 7p for a litre of petrol, and trust me even for them 1 riyal is nothing, it is dirt cheap, water is more expensive. And whats more taxi drivers told me, last year it was more expensive, at 2 riyals for a litre. The price over this year has more than halved in saudi. taxi drivers are loving it, everyone leaves there cars running idley with air con on whilst they pop to the shop for 10 mins, that is how cheap the petrol is for them. and diesel is even cheaper, about half the price of petrol, about 1 riyal for 4 litres!!

so my question is how come it is so cheap for them and it seems to be getting cheaper? I know they are one of the major oil producing countries but still if oil is running out, and the rest of the world is feeling the increase in price, how come it is the opposite for arabia?

[adam2]

Petrol in many oil producing nations is sold at the cost of production, rather than the world market price.

The market price varies due to actual or perceived changes to supply and demand, together with the markets view of what the future holds, another war? more demand? more production? boom in China? reccesion in the USA? etc.

However the actual direct cost of pumping oil out of existing fields does not alter in line with changes in the above factors.

In addition some countries sell fuel at less than the cost of production in order to keep the people happy.

[PS_RalphW]

Because they are making so much money selling their excess to us, that they can afford to sell to their own people well below production cost. And SA has (had) some of the lowest production costs in the world. Now they are investing tens of billions, but still struggling to maintain supply.

The SA Ruling royal elite maintains its position through patronage. It is an absolute monarchy and the monarch needs to be generous with his wealth to maintain the loyalty of the tribal leaders and keep the millions of bored young Saudis too busy to notice they have no political influence and no real jobs. And to keep the Muslim fundamentalist schools from turning on them like Bin Laden.

[biffvernon]

30 million Saudis getting a billion dollars per day in oil revenue, the king can afford to give it away to his loyal subjects. (Well, the men at least - the women aren't allowed to drive.)

[skeptik]

ibut still if oil is running out, and the rest of the world is feeling the increase in price, how come it is the opposite for arabia?

Because they can afford it.

The run up in crude price has been hugely beneficial to the Saudi balance of payments. Back in the 90's when oil was (too?) cheap they were running a budget deficit. Now the treasury is stuffed with hundreds of billions of dollars. The government can afford such largesse as cheap subsidised fuel. Keeps the people happy and less likely to pay any attention to al-quaeda militants.

Many oil producing counties that can afford to play the same populist game - e.g. Iran, Venezuela. This policy backfires when the country goes over Hubberts peak and the govt is forced to reduce the subsidy because of declining oil income. Then you get riots.

The UK never played this game. We used the oil revenue mainly, it seems to me, to subsidize the de-industrialization of the UK.

[biffvernon]

Indonesia is in that position now. We never quite managed it by the cunning strategy of selling oil and getting over the peak earlier, while prices were low.

[RevdTess]

so my question is how come it is so cheap for them and it seems to be getting cheaper?

As biff said, it's probably because they don't let women drive. Halves the demand

[Blue Peter]

The UK never played this game. We used the oil revenue mainly, it seems to me, to subsidize the de-industrialization of the UK.

Presumably it depends upon having a national oil company at the very least. Is all Norwegian oil produced by StatOil or whatever it is? or are the 7 sisters involved there?


Peter.

[biffvernon]

A national oil company? Didn't we used to have one? The Anglo-Iranian Oil Company, aka British Petroleum Company after 1954 and until Thatcher sold it in 1984.