Oil prices in oil producing countries?

Question

how much does gas cost in countries like saudi arabia, kuwait and others that make loads of oil. is it cheap or expensive?

Answer 1

Oil producing countries often do not refine oil, so they export the petroleum and import it back as gasoline, they also often subsidize petroleum so prices in oil producing countries are not necessarily representative of the costs.  Saudi Arabia charges about fifty cents for a gallon, but in the US we have substantial taxes on oil and in Saudi Arabia they have negative taxes on gasoline, they basically pay people in the country to use it, they also do not have global shipping costs.

The problem isn't is oil cheap or expensive, the problem is "is the next barrel to be pulled out of the ground cheap or expensive."

The question should be what is the marginal cost of the next barrel of crude, not the last one removed. The costs range from $19 per barrel to $60 per barrel, but you have to remember that the $60 barrel fields were not operative when oil was $40 per barrel or even $60. When oil costs $60 and it was believed it would persist, then they started looking for $60 oil fields. They are now looking for $100 oil fields. When they find them and the oil comes online the price will fall. What they try to do is find the point where the cost of the next barrel equals the price people will pay after that supply has been added.

They try to estimate a what-if scenario. If I add 1 barrel of oil from a new field, what will the price fall to? Is there a field where I can produce it at that level or cheaper? If cheaper, what is the price if I add 2 barrels and can I find fields that will support two barrels at or below that price and so forth until they add X barrels and reduce price N dollars so they break even. They make a profit on every barrel up to the X barrel and break even there. That barrel is worth exactly to them what it is worth to you. That is the profit maximizing point. They make smaller and smaller profits up to barrel X where they make nothing.

You cannot do a simple markup, it doesn't work that way, they look for increasingly expensive fields as they use up the cheap ones, kind of like picking apples, it is easiest to pick the bottom one first and expensive to go buy a series of ladders to get higher and higher into the tree. If you can raise the price to the point you can justify the longest ladder, then you do it, but that means you make a huge profit on the bottom apples and little to none on the top.