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OPEC Sweats: How Low Can Oil Prices Go?

In this graph are contained the hopes and fears of the world’s petro-states. That black line represents the 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.

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  • Pait

    Interesting. It would be interesting to see where Venezuela is in the graph.

    Just one correction: the fall of oil prices since 2008 has at least as much to do with the recession in the rich countries as with increased production. Geopolitically, shale gas is a “good thing”, but not all sources of energy are the same, and in the short run prices are controlled more by supply and (in this case more importantly) demand than by technological changes.

    • Patrick Carroll

      My God! So that’s why The Won is laying waste the American economy!

      That’s … brilliant!

      I mean, he sees his job as to manage American decline. American decline means less to go around for everyone. American experiences a decline, the world experiences the dark ages.

      That’s not brilliant. That’s … AWESOME!

      • Pait

        WRM, I am sorry that you have to moderate comments again. I’d rather grade exams 😉

  • rheddles

    Cutting production won’t help unless the revenue effect of the volume decrease is more than offset by the price increase. And as a price increase is likely to cause a recession with consequent reduction in demand, this is unlikely to happen.

    This is a real shame, as the countries that will be hurt are such upstanding members of the international community. Drill, baby, Drill.

    • Bob_from_Ohio

      Yeah, look at the Iran line.

      Too bad for them.

  • Pete

    I wonder if any OPEC countries are channeling money in someway to the environmental kooks in the U.S.

    • Fred

      I’m not aware of any evidence to that effect, but it certainly sounds plausible.

    • Misanthrope

      You can start with the movie “Promised Land,” which was largely funded by the UAE.

      • Pete


  • Pete

    And say, wasn’t it that ‘genius’ Henry Kissinger who manipulated oil prices higher in the 1970s to keep Iran stable?

    There it is. By hook or by crook, the our elite — the masters of the universe — think U.S. citizens are suppose to subsidizes the entire world so those globalists can move the world’s chess pieces around to their satisfaction.

    No wonder the Jacksonians despise Washington so.

  • ljgude

    It couldn’t happen to a nicer bunch of blackmailers. Now lets put someone in the White House in 2016 who will appoint Ms. Palin to run the Department of Energy. Then we’d see the arms and legs really fly.

  • Rich K

    The gulf states are sitting very pretty even at $70 a barrel so this is a rather hyped premise on Walters parts for those states.The big worry is Iran trying a Saddam like move on those states.

  • Patrick Carroll

    What’s the break-even point for oil from the North Sea – from the UK and Norway? How about Nigeria? Mexico? The world does not revolve around the Middle East and the ‘stans.

    I say push the price down to $95 in the short-term, to cause the nutters to implode, and then let’s see a graph with all the oil producers and their break-even points, and decide who to starve next.

  • SDN

    Don’t worry, Obama’s EPA will keep his co-religionists happy.

  • Jesusland

    Funny how the price of “oil” can go down, but the price of GASOLINE can keep going up. Funny how that works, huh?

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