[yesplease]

In light of OPEC's recent announcement that they will attempt to push oil back to $75/bbl through supply cuts, I was wondering why $75/bbl? Why not $100-125/bbl?

I think that one aspect of the answer to this question involves alternatives such as plug-in electric vehicles. W/ new batteries offering longer lifespans at lower costs, in some cases upwards of 4,000 equivalent cycles to 100% depth of discharge down to 50% capacity, which is where the pack would be replaced in a PHEV like the Volt, and around $300/kWh in sufficient volume, that leaves storage costs at around 7.5c/kWh. Assuming a vehicle w/ similar siz/design to a Prius or Volt leaves us w/ average energy consumption of about 250Wh/mile and after charging efficiency of ~90%, motor efficiency of ~85%, and inverter efficiency of ~85%, battery storage costs of around 11.5c/kWh delivered to the wheels and ~2.9c/mile not counting any cash the owner could get from the additional ~1800+ equivalent 100% depth of discharge cycles left in the pack or any core charge for the materials.

At the U.S. average of ~12c/kWh for electricity, we would need another ~3c/mile for electricity costs for something around 5c/mile total energy costs. W/ a stock Prius at 50mpg and gas at ~$1.5/gallon, fuel costs would amount to around 3c/mile. In terms of maintenance AC Propulsion estimates a roughly 5:1 ration in terms of fossil fueled vehicle maintenance costs compared to PHEV maintenance costs assuming mostly EV use, and AAA has maintenance costs at roughly five cents per mile for a mid-size sedan. so that would add ~1c/mile to the PHEVs operating costs, ~4c/mile for a typical fossil fuel powered vehicle's costs, and ~2-3c/mile to the hybrid fossil fueled powered vehicles costs.

Now we have PHEV's at ~6c/mile not counting any residual value the older pack may have and HEVs at ~5-6c/mile. While close, this isn't a requisite price point for adoption considering that by buying a PHEV an owner is paying more upfront in exchange for paying less for fuel. While this may be advantageous in some cases, given the average mid-size vehicle cost is ~50-60c/mile, I think we would need to see a ~5-10c/mile difference in operating costs to justify PHEV expansion. it seems OPEC has to set the bar lower in terms of stabilizing oil prices since at ~$100+/bbl (sustained) PHEVs would start encroaching on their larger markets w/ fewer taxes, probably by way of other markets where higher taxation makes PHEVs somewhat attractive even at $50-75/bbl.

In short, w/ countries like Germany entertaining the possibility of having 2% of their vehicle fleet be pure EV or PHEV by 2020 on top of their already fuel efficient compact offerings that average ~35-50+mpg, significant increases in battery lifespan, and huge reductions in battery costs that have allowed Chinese manufacturers to offer PHEV Corolla clones for the cost of a new Prius in the states, OPEC will likely be very careful in the future, especially in conjunction w/ automakers, if they hope to keep their market share given that sustained forays into the $100+/bbl region would probably result in proportionally large losses of share down the road. In short they're going to have to do a very good job balancing demand w/ supply if they hope to minimize competition in oil's largest use, transportation.

That isn't to say we won't see more price spikes above $100/bbl, just that I doubt we will see a push above $100/bbl in the long run. As usual accounting for oil's externalized costs can also changethe picture drastically.

[RdSnt]

While your calculations maybe accurate I don't believe the Opec countries are using them as a factor in establishing prices. They look at their budgetary needs and see that currently $75 would be the level they need. They didn't say that $75 was their maximum, they just said that they would be satisfied with that.
They have no worries about market share.

[DaleFromCalgary]

I doubt OPEC cares about electric cars. $75 is closer to the break-even for oil projects for the Saudis. Although they claim they can drill for $2/barrel, which I am prepared to believe, they have to spend a fortune on seawater pumping to keep their fields pressurized, separation plants to strip the water out after pumping, refineries, loading docks, pipelines, and all the other impedimentia of the oil biz. Also what must be accounted for is selling gasoline to their own citizens at below market cost. It all adds up.

[yesplease]

Saying market share isn't important is downright silly IMO. If OPEC's member countries didn't care about market share they wouldn't have have engaged in the reserve estimate "arms race" so they could maintain market share. As for the assumption that they're picking a point where there budgetary needs are satisfied, given lifting costs of ~$20/bbl, does that mean that the member states of OPEC cut their budget by 30+% after attempting to defend $100/bbl? Although I suppose it's likely that they are simply trying to defend higher oil prices in general, w/ greater and greater production cuts as price drops, I'm pretty sure they're assuming less than $75/bbl for budgetary concerns. It's not lot we're talking about the big three here.

Granted, like I said before, competition from alternatives would only be one aspect that could answer why they're picking $75/bbl as opposed to something higher. Public opinion, conservation in general, their budgets, etc.. etc.. are all parts of why they're choosing to defend a particular price.

That said, be it from conservation or alternatives, the ~6% drop in U.S. consumption alone makes up for half of OPEC's cuts, so a reduction in use by as little as 1% can definitely hurt prices and result in them taking action to defend some price point. Along these lines something like CA's former ZEV mandate, which would've started at 2% of all new car sales and hit 10% by 2003, would've resulted in U.S. oil consumption being a half a percent lower for ~5+ years, could've put a big crimp in oil's run up considering a 1% drop in one year has dropped prices to a third of what they were. We're talking hundreds of billions, maybe even a trillion, in savings w/ only a ~$20 billion layout assuming EVs would require a $20,000 price increase in mass production, which I really doubt considering the low volume versions offered to the public had a $20,000 premium, which was also reduced via state incentives.

I think saying that demand is fickle would be an understatement. A percent here, a percent there, and before ya know it we're talking about a few trillion. I also think that OPEC isn't ignoring alternatives. especially given how quickly prices have fallen this time. During the last embargo they successfully defended higher prices for much longer resulting in trillions more in profit over those years.

edited for typos

[eastbay]

I doubt OPEC cares about electric cars. $75 is closer to the break-even for oil projects for the Saudis. Although they claim they can drill for $2/barrel, which I am prepared to believe, they have to spend a fortune on seawater pumping to keep their fields pressurized, separation plants to strip the water out after pumping, refineries, loading docks, pipelines, and all the other impedimentia of the oil biz. Also what must be accounted for is selling gasoline to their own citizens at below market cost. It all adds up.

Plus many billions in elaborate security measures.

[Revi]

$75 is $20 higher than the price now. I think if they can get it back to around $75 that would help alternatives immensely. I am still driving my NEV around even though gas is at $1.75 now. It's way more fun to drive than my gasoline burner.

Ain't gonna catch me ridin' dirty!

[threadbear]

Sensitive price point issues. If the Saudis allow the price to go too high, all the money sloshing around in money market funds, and a lot of govt deficit spending will flow into alternatives and they'll slowly go right out of business. Might happen anyway.

[pup55]

At a price of $75 that equates to $2.25 or so for gasoline, which keeps the US retail price just under $3.

So that's why. The "price point" thing is right. They correctly have figured out the bitching/pain level for the US consumer is about $3.

[lowem]

$75 could be the point where alternatives aren't too viable or only marginally so, be it tar sands, EV's, CTL, etc.

Higher prices than that might drive people to alternatives, lower prices than that might damage profitability for some of the OPEC members with higher costs.