I have recently wrote an opinion piece in BRIC Magazine relating to why I think oil prices will rise from current lows. Here is some backing information I have used in formulating that argument.
The collapse of oil prices that started in July of 2014 has had wide-ranging implications on the fortunes of most oil producing nations and has received endless coverage in the media with particular attention being paid to the negative effects on their economies. As such, a number of opinions have become prevalent in the market – in particular the resulting weakness of the Russian economy and the likely resilience of Saudi Arabia.
It is therefore of interest to see what the real big picture of the situation is and its likely effect on the health of this group of countries going forward.
First, let’s start by looking at the difference in the cost of oil production (i.e. the physical cost to extract a barrel from the ground) and the market price that is needed by a country to balance their budget (i.e. what price the country then needs to sell the oil on the open market in order to generate sufficient revenue to cover government expenses on infrastructure, welfare etc.).