Saudi Arabia is reportedly aiming to price its oil at $80 a barrel.That's likely in attempt to finance domestic policy plans and boost the valuation of its oil giant Aramco.But it may hurt them by distorting both supply and demand in the oil market.Although OPEC and allies have never officially targeted any specific price of oil with the production cut agreement, each member of the pact knows very well where they want oil prices to be in order to balance their budgets that have been stretched thin in the price plunge.OPECs largest producer and de facto leaderSaudi Arabiais the most closely watched oil nation for hints about an unofficial oil price target, and speculation has been ripe since the start of the deal in January 2017 as to what price the Kingdom is aiming for.For months, Saudi Arabia has been said to aim for oil at$70 a barrel, but now new hints and reports suggest that Riyadh is likely shooting foroil at $80to help finance increasingly ambitious domestic policy plans and to boost the valuation of its oil giant Aramco ahead of its much-hyped IPO.If this unofficial oil price target were reached, however, it could backfire spectacularly on both sides of the oil-market-balance equationsupply and demand.$80 oil would trigger an even bigger U.S. crude oil production surge that could unravel OPECs efforts at eliminating the glut. Oil at $80 could also slow down global oil demand growth, undermining one of the cartel and friends key assumptions: that robust demand growth will absorb the non-OPEC supply and that demand growth will continue to be strong going forward. Last year, oil demand growth surprised a bit on the upside, helping bloated inventories to draw down significantly. Yet, targeting $80 oilif we assume that Saudi Arabia is doing thathas its economic reasons. According to RBC Capital Markets, OPECs producers need oil even higherat an average of $88 a barrelto balance their public spending this year,Bloomberg Gadflys Liam Denning writes.For Saudi Arabia, the price of oil needed to balance the 2018 public spending is $83 a barrel. The OPEC member that needs the lowest price of oil to balance this years expenditure is Iran, at $52 a barrel, according to data by RBC Capital Markets.It comes as little surprise then that Saudi Arabia and Iranapart from the tense regional archrivalryare reportedly atodds overwhere to go next with the OPEC deal, and how high an oil price the cartel should target. Iran is reportedly suggesting that $60 oil is about right so as not to encourage U.S. shale (even more), while Saudi Arabia is in need of higher-than-$60 oil to balance budget spending and lift Aramcos valuation to anywhere close to the US$2 trillion that officials have been targeting. It also comes as little surprise that the latest hint that the Saudis are likely targeting $80 oil is not universally shared among all OPEC members, according toBloombergsources who relayed the Saudi ambition for said target. Some nations have privately expressed concern that such a price would be too comfortable for U.S. shale.It may very well be. At Brent above $60 and WTI at a $3-4 a barrel discount, U.S. crude oil production has exceeded 10 million bpd in each of the weeks in February and March, EIAdatashows. The Permian continues to boom, and even in case of takeaway capacity constraintswhich have led to around $11 a barrel discount of Midland, Texas, oil to BrentPermian producers would pump at profit if Brent were to rise (and stay) at $80, Bloombergs Denning argues.Then, higher oil prices could also spur more production from areas outside the hottest U.S. shale play. According to theDallas Fed Energy Surveyfrom March 2018, the average WTI breakeven price to profitably drill a new well in the U.S. ranges from $47 to $55 per barrel. All the main areas, including the Permian, Bakken, and SCOOP/STACK, have average breakevens at less than $54 WTI, according to executives from 65 E&P firms.The higher the oil price the Saudis (or OPEC) target and possibly reach, the more areas in the U.S. would be profitable to drill and add to the global oil supply, potentially wiping out the effect of the cuts and depressing oil prices again. On the demand side, oil at $80 could hurt global oil demand growth, which was the tailwind last year to help OPEC significantly reduce the oversupply. Demand growth could also slacken should the current U.S.-China trade spat hurt global trade and impact global economic growth. While the effects of a possible trade war are still just in the realm of possibilities and analysts are waiting for all the rhetoric dust to settle, if trade and economic growth were to weaken, they could affect the pace of oil demand growth. This could undermine the assumptions of OPEC and allies that strong demand growth in the short term would help the cartel to achieve its mission to bring inventories down to normal levels.OPECs current strategy hinges heavily on the prospects of future demand growth, Bassam Fattouh and Andreas Economou at the Oxford Institute for Energy Studies wrote in a newpaperon OPECs policy and choices.Thus, the risks of potential trade wars and the potential negative impact on the global economy and on oil demand if these risks do materialise should constitute a serious concern for OPEC, the authors argue.Even without trade wars, OPEC could see demand growth slow down at $80 oil, as oil importing nations would be paying $30 a barrel more than they did last year, and double what they paid in 2016.If $80 oil is really the unofficial Saudi target, and if prices reached that levelamid potentialhigher geopolitical risks(Iran, Venezuela) for exampleU.S. producers could tip the supply side into another oil glut, while demand growth could slow down, leading to another cycle of depressed oil prices.SEE ALSO:Nigeria's top statistician tweeted the country's latest inflation data an hour early ' and blamed a non-existent time difference between Nigeria and LondonJoin the conversation about this storyNOW WATCH: What living on Earth would be like without the moon
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