OPEC Sweats: How Low Can Oil Prices Go?
Brent price for a barrel of crude oil, a benchmark used for European, African, and Middle Eastern oil. Countries whose fiscal breakeven oil price—the price at which oil needs to be in order for the country to balance its budget—exceeds that black line are projected to run budget deficits this year. Countries coming in under the black line would run a surplus if oil prices hold steady. So the hope is that that line stays above one’s breakeven price, but the very real fear is that it will dip down below.Petro-states’ breakeven prices reflect how much governments are spending. In the 1990s, the price of oil collapsed, and countries tightened their belts to get breakeven prices close to that level. But oil prices have ballooned in recent years, reaching a high of $148 per barrel in 2008. That provided governments with a flood of cash to spend, just in time for the Arab Spring, when many Middle Eastern countries ramped up government spending to placate their suddenly restive populations.But the price of oil has receded from that 2008 high, now resting around $102 per barrel. That’s largely due to the US shale boom, which has brought millions of barrels of new oil to market and brought prices down with it. As the above chart shows, that means trouble for many of these states that have come to rely on high oil prices to help them prop up their regimes.If the price of oil continues to come down, these countries will have two options to stay fiscally solvent. First, they can cut spending to help bring their respective breakeven prices down. But that risks setting off another round of revolutions; leaders casting sidelong glances at the unrest in Turkey can’t be too excited about making this decision.The other option is for OPEC members to jointly curtail production to counteract the recent influx of US oil. In theory, this would inflate prices and keep many petro-states on the right side of that black dotted line. But there are divisions within OPEC. Some members are being hit harder than others based on the type of oil they have, and generally the countries most affected by the new US supply are also the least able to curtail their own supply without gutting their economy.Of course, the price of oil is volatile and subject to more than just supply. There’s also no guarantee that the price will continue to go down. But every country on that list is watching the US shale revolution closely and sweating as the dotted line drops further.