Oil prices below break-even

The Guardian is reporting that global oil prices are at less than half of the cost of production in Saudi Arabia, contributing to a budget deficit of 20% of GDP.

For the same reason raising fossil fuel prices with a carbon tax is expected to reduce demand, it can be expected that lower fossil fuel prices will lead to more usage. At the same time, low oil prices could be the result of global economic weakness, in which case the amount of fossil fuel consumed may not rise much even with falling prices. In the longer term, low oil prices almost certainly reduce investment in the development of new oilfields, pipelines, refineries, and so on. Given the urgent need to stop investing in such projects to control climate change, low oil prices may be at least partly desirable from a climate change perspective.

Author: Milan

In the spring of 2005, I graduated from the University of British Columbia with a degree in International Relations and a general focus in the area of environmental politics. In the fall of 2005, I began reading for an M.Phil in IR at Wadham College, Oxford. Outside school, I am very interested in photography, writing, and the outdoors. I am writing this blog to keep in touch with friends and family around the world, provide a more personal view of graduate student life in Oxford, and pass on some lessons I've learned here.

One thought on “Oil prices below break-even”

  1. CNN Money is reporting the rather startling situation that Saudi Arabia needs oil at $106 to balance its budget, and will eat up all of its reserves in less than five years at current prices.

    By contrast, they think the United Arab Emirates need $73 oil; Iran breaks even at $72 and can last about 10 years; Qatar needs prices at at least $56; and Kuwait can maintain budgetary balance with a price as low as $49.

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