Oil prices have been plunging. This is bad news for many oil exporting nations.
The biggest energy story in the world right now is the collapse of global oil prices. And for major producers like Russia or Iran or even Saudi Arabia, that’s unsettling news.
How bad is it? One good place to start is with this excellent chart from The Economist looking at the “break-even” points for various countries. These are all nations that depend heavily on oil revenues for their national budgets — so when the price falls below the break-even point, the government starts running a deficit.
Click on chart to enlarge.
As you can see this is bad news for several countries but the Saudis see a cloud with a silver lining.
And there’s another angle here: Officials in Saudi Arabia have signaled that lower prices (say, $80 per barrel or lower) could make some shale-oil producers in the United States unprofitable and force the US to cut back on production. Saudi Arabia would be fine with that, since its oil tends to be cheaper to produce than most shale oil projects in the United States. That US cutback, in turn, could help stabilize prices.
My understanding is that most fracking operations were have a tough time making money at $100 a bbl so how long will they continue as it approaches $80? This is not unlike the problems the natural gas frackers had when the increased production drove down prices.
With the instability in the Middle East one would think that oil prices would rise so what gives here? Of course the economic malaise has something to do with it especially in Europe. The bottom line is things don’t look good for oil boom in North Dakota.