I have doubts that all of Saudi's production is really that low. They have started enhanced oil recovery on Ghawar years ago. They spent $17 Billion on Manifa for 900,000 BPD of heavy, sour (cheap) oil.
Their problem, and most of the other producers, is their spending. They need oil back up to $106 to match what they are spending. They are quickly spending billions at these prices.
Here in the US, oil has to keep the oil company profitable.
In Saudi Arabia oil has to keep the state profitable. Government agencies are funded by oil. Government welfare programs are funded by oil. The royal family is funded by oil.
Being a kingdom, the royal family in essence owns the state. The state owns Saudi Aramco. Thus, 80% of all government money comes from oil.
Actual production costs might be low, but government expense requirements are high .
Reports I have read, place Saudi Arabias actual need for oil cost around $86-$88/bbl, to keep the government solvent.
SA produces about 9.7 million bbl per day. That's about 3.54 billion bbl a year. At $40 a bbl below whats needed, that's about $141.62 BILLION a year deficit.
$141 billion might seem small in comparison to our deficits, but Saudi Arabia has a population of 28 million vs the US of 316 million.
“I have doubts that all of Saudi’s production is really that low. They have started enhanced oil recovery on Ghawar years ago. They spent $17 Billion on Manifa for 900,000 BPD of heavy, sour (cheap) oil.”
They really are that low:
The Saudi oil minister al-Naimi’s interview in Argus Global Markets should send chills down the spines of oil producers. He noted that “sooner or later, however much they hold out” high cost oil projects such as wells in Brazil’s sub-salt offshore region, off the coast of west African, and in the forbidding Arctic would have to scale back in response to low prices. “Will this be in six months, in one year, two years, three years? God knows,” said Naimi. “I say Gulf countries, and particularly the kingdom, have the ability to hold out.”