While no one can predict the short-term direction of oil with any accuracy, there are several reasons to believe that the recent plunge in crude prices may not last much longer.
Why low oil prices might be temporary
Nation
Oil Price/barrel required to break even/balance budget
US producers
$70-$77
Qatar
$58
Kuwait
$59
UAE
$90
Saudi Arabia
$92
Angola
$94
Russia
$101
Iraq
$116
Venezuela
$117
Algeria
$119
Ecuador
$122
Nigeria
$124
Iran
$136
Sources: Reuters, Bloomberg, Marketwatch.
large proportion of today's oil production is currently occurring in nations who depend on far higher prices to balance their budgets. Similarly, while the average production cost in North Dakota's Bakken shale is just $38 per barrel, nationwide U.S. shale production costs are higher, with an average cost of $70 to $77 per barrel, according to Reuters.
This means that at current oil prices, production growth in the US may soon grind to a halt. For example, according to analyst firm Sanford C. Bernstein & Co. at $70 per barrel, U.S. oil production growth will halt, and below it, production will begin to shrink.
Simply put, budgetary necessities faced by many petro-states as well as the economic reality that one third of U.S. shale production is uneconomical below $80 per barrel, mean things will likely have to change sooner rather than later. Over the coming months, it's probable that someone, OPEC, Russia, or U.S. producers, will be forced to cut production, which could cause oil prices to stabilize and rise to more favorable levels.
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