The price of oil hit a more than two-year low in trading recently, as Brent crude plunged to just over $92 a barrel. For more than a year, that benchmark was trading above $100 a barrel, but a variety of factors has sent prices in a downward spiral in recent months, as you can see in the graph above. The FT reports:
Brent has fallen from $115 a barrel in mid-June amid an oversupply from the North Sea and Atlantic Basin, which has coincided with greater North American production. Sustained output from Iraq and Libya – despite violence ravaging both countries – has also kept prices at bay, as has weaker demand from Europe and China.
Petrostates around the world, including Russia, rely on high oil prices to balance their budgets. Many analysts believe Russia requires an oil price above $100 a barrel to keep from going in the red, and Saudi Arabia’s breakeven price is believed to be in the neighborhood of $89 a barrel. The FT continues:
“Oil [prices are] very close to a level that should cause discomfort to Saudi Arabia’s fiscal balances,” said Abhishek Deshpande, analyst at Natixis. “Other Opec producers such as Iran, Iraq, Libya, Algeria are most definitely suffering from the delay in cutbacks.”
American production is in a large way responsible for declining oil prices; the shale boom has unleashed a new supply of crude on global markets. Given that Moscow relies on oil revenues for a large chunk of its budget, one can imagine Putin must be anxiously watching this trend.