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OPEC Sweats: How Low Can Oil Prices Go?

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Walter Russell Mead, Via Meadia

In this graph are contained the hopes and fears of the world’s petro-states.

2013_fiscal_breakeven_point

That black line represents the Brent price for a barrel of crude oil, a benchmark used for European, African, and Middle Eastern oil. Countries whose fiscal breakeven oil price—the price at which oil needs to be in order for the country to balance its budget—exceeds that black line are projected to run budget deficits this year. Countries coming in under the black line would run a surplus if oil prices hold steady. So the hope is that that line stays above one’s breakeven price, but the very real fear is that it will dip down below.

Petro-states’ breakeven prices reflect how much governments are spending. In the 1990s, the price of oil collapsed, and countries tightened their belts to get breakeven prices close to that level. But oil prices have ballooned in recent years, reaching a high of $148 per barrel in 2008. That provided governments with a flood of cash to spend, just in time for the Arab Spring, when many Middle Eastern countries ramped up government spending to placate their suddenly restive populations.

But the price of oil has receded from that 2008 high, now resting around $102 per barrel. That’s largely due to the US shale boom, which has brought millions of barrels of new oil to market and brought prices down with it. As the above chart shows, that means trouble for many of these states that have come to rely on high oil prices to help them prop up their regimes.

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