In less than two weeks, OPEC will convene in Vienna for its final meeting of the year, and the rest of the world will be watching closely to see if the cartel agrees to cut production in an attempt to stop what continues to be a precipitous price slide over the past five months. To this point, OPEC has done nothing of the sort, seemingly content with a price of oil that puts many of its members’ national budgets in the red. In the chart above, you can see the price of crude tumbling ever downward, well below the sky-high breakeven prices of Iran and Venezuela, and notably dipping below what the Saudis need to balance their own budget.So far, OPEC, led by Saudi Arabia, has opted to fight for market share in this bear market, perhaps hoping that once prices dipped below American shale breakeven levels, those U.S. firms would be forced to cut their own production and stop the slide themselves. But the more time goes on, the more strain is put on the solvency of the world’s petrostates. Take Russia, for example:
Moscow needs to sell its oil at more than $100 per barrel just to balance its budget, but at current prices, it risks running a deficit of 2.3 percent of the country’s GDP. Russian president Vladimir Putin acknowledged this reality ahead of the G20 summit, saying, “we’re considering all the scenarios, including the so-called catastrophic fall of prices for energy resources, which is entirely possible, and we admit it.” That’s especially unwelcome news for a Russian economy already struggling to deal with Western sanctions.Lower oil prices are generally good for the global economy, and a recent study showed them to have a net benefit for America. That said, this isn’t a great time to be a petrostate.