Dec

1

 Unusual comments in this article: "Oil Shock Streaks Across Globe From Moscow to Tehran to Caracas. Ready for $40?" .

The exploration budgets vs. chaos take–a correlation with rioting in Venezuela? Who blinks first?

"If the governments aren't able to spend to keep the kids off the streets they will go back to the streets, and we could start to see political disruption and upheaval," said Paul Stevens, distinguished fellow for energy, environment and resources at Chatham House in London, a U.K. policy group.

"The majority of members of OPEC need well over $100 a barrel to balance their budgets. If they start cutting expenditure, this is likely to cause problems."

More from Professor Stevens:

However, in terms of OPEC's current strategy, the break-even price is the wrong metric. What matters in the next few years is the shut-in price. After the 1986 price collapse, a number of stripper wells in US (with high variable costs) did close, but the loss of production was minimal. North Sea production, which had been OPEC's prime target, was hardly affected and actually increased in 1987. The current level of shut-in price for shale oil is again debatable, but almost certainly is well below $40 per barrel. Thus it will be some time before existing shale oil production falls, even if prices stay low. Should the oil price fall towards variable costs, threatening shale supply, it will be the OPEC producers who must blink first. They will then try to take back control of the market, if they can.

See more at: "Deja Vu for OPEC as Oil Prices Tumble".


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