Oil below $100 (U.S.) oil will ratchet up geopolitical tensions

Oil below $100 (U.S.) oil will ratchet up geopolitical tensions
CHICAGO — Reuters Breakingviews
Published Thursday, Oct. 30 2014, 5:30 PM EDT
Last updated Thursday, Oct. 30 2014, 5:30 PM EDT
Sub-$100 (U.S.) per barrel crude may inflame geopolitical tempers in 2015. The sharp slide in the oil price since June from triple digits into the $80- to $90-range is turning up the heat on oil producers. But two of the world’s most flexible suppliers – Saudi Arabia and U.S. shale drillers – can stand the pain for some time.
OPEC linchpin Saudi Arabia needs an average oil price of around $92 per barrel to cover public spending, according to analysts surveyed by Thomson Reuters. Even with the recent price slide, Brent crude oil has still averaged well over $100 a barrel over the past six months. The price would have to stay below Saudi’s break-even level well into 2015 before OPEC’s swing producer starts to feel the pinch. Even then, the kingdom has roughly $770-billion of foreign reserves, enough to cover shortfalls for years.
Analysts say U.S. shale drillers, the newest arrivals among big global producers, mostly need an average oil price of $60 to $80 to break even. But the precise number varies widely, and drilling costs have been falling as engineers become more experienced. The companies involved may just step up cost-cutting efforts or divert investment to cheaper oil fields rather than cutting supply if prices stay low.
Some petro states won’t have it so easy. Venezuelan President Nicolas Maduro, for instance, needs a crude price of about $117 a barrel to pay his government’s bills – second only to Iran’s $136. The Latin American nation’s financial difficulties could morph into a political crisis. OPEC members in need of such high prices may not take kindly to Saudi Arabia’s stance.
Vladimir Putin’s Russia, meanwhile, relies on oil and gas to fund more than half government spending. And at just $92-billion as of September, its rainy-day reserve offers only a limited buffer. A fall in oil revenue combined with the impact of sanctions over Ukraine could choke off growth in 2015.
The Saudi-U.S. shale dynamic suggests that without a big shock to supply elsewhere, prices in the $80 range could hold in the coming year. For oil users, whether industrial importers or car-loving consumers, lower prices will provide a boost. But within the OPEC group and beyond, reduced oil revenue could make political tensions worse.

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on October 30, 2014, in miscellaneous, oil. Bookmark the permalink. Leave a comment.

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