A surplus of oil supply and dwindling demand meant prices had only one way to go: down. June 2014 peaked at $115, then the price went below $80 in November, and in December, it was below $60. The traditional reaction would have been to cut supply and force prices up, however, OPEC, the collection of oil producing nations that are responsible for over 40% of the world’s oil supply, stated that they have sufficient financial reserves to weather the storm and that they would not cut production.
So, what does low oil mean for everyone else? The bar chart below shows the breakeven point each country needs to balance its budgets:
Regrettably, it is not possible to obtain Russia’s breakeven price. It is likely that it will be above $80, with expectations of the economy to shrink significantly if oil stays at current levels.
All those nations above, bar Qatar, have now seen and continue to experience civil unrest. There has been a rise in political protests and many nations are close to defaulting. Despite all concerns and instabilities, all the oil producer countries and companies have announced that they have no intention of cutting back production. It is likely that these low oil prices will be here for a significant amount of time, allowing several options.
The ending of costly oil subsidies and energy efficiency measures will help governments and nations have more money in their treasuries. Investing in energy efficiency in a down market to prepare for sudden rises would also be idyllic. However, it has been noted that many see low oil prices as a means to cut back on energy efficiency, as well as alternative energy sources, meaning that economies would still be very dependent on fossil fuels.
