A 30% change in oil prices appears to be impacting all major industry players, some of which are effected in a good and some in a bad way. These days, governments and business leaders world-over are reviewing business models and state budgets towards austerity.
For China and India, the most populated countries, a drop in prices seems to be beneficial because it would provide the opportunity for economic growth through increased consumption. At the same time, Russian & CIS, as well as South American economics which are based predominantly on natural resources base, would be impacted in a very negative way.
A very relevant question is the production cost of shale oil in the US in the next 3 years. The creativity of US engineers and the newly developed infrastructure would be able to drop that cost from today’s $70-80 per barrel to below $60 per barrel, which should in turn provide US producers with good margins and keep more cash flow inside of the US and grow the economy. For US shale oil producers, the risks of an oil price drop could be mitigated by the support of the federal government and protect the industrial and economic growth.
The US economy will likely increase consumption due to economic growth while reducing prices, which has already positively impacted consumer levels in the country.
The volatility of oil prices for the short-term could drop even below 70$ per barrel, and might put many offshore project on hold.
We are looking towards the OPEC and trying to understand the results of the meetings, but the interests inside of the organization are not consolidated and strategy cannot be developed for a while. Today the Middle East, particular Saudi Arabia, has the most comfortable situation with the cost of the oil, which is in the range of 1$ per barrel and they can increase the production to keep the cash flow and at the same time push oil prices down with the aim of putting expensive projects like offshore, arctic and even shale oil on hold.
Where is the balance?
Very low oil prices could be good in the short-term for some countries, but the global industry has to find a balance. A range between $75-85 barrel will keep the market stable for the next few years.