EIA Releases Study Regarding Breakeven Crude Oil Prices

Just about everybody knows that crude oil produced in the U.S. from extremely tight formations, called shale, is just about the most expensive worldwide today because of the high technology and deep horizontal drilling.

It also is a very known fact that crude oil produced in other parts of the world, like Saudi Arabia, are the low-cost producers because their crude oil comes from very porous rocks in much greater quantity.

Some have alleged that the low-cost producing countries have tried to run out the high-cost producers in recent months by ramping up production during an already oversupplied economy to drive down prices and bankrupt the high-cost producers.

The geology and economic ramifications are complicated pitting country against country and government-owned oil companies against privately owned companies in the U.S.

The Energy Information Administration (EIA) at the U.S. Department of Energy recently shed some light on the complicated issues by releasing a study regarding the breakeven crude prices of various countries.

The recent oversupply of crude oil worldwide has forced prices to a record low this year and forced many countries that produce crude oil to agree to cut 9.7 million barrels per day (b/d) in an effort to revive markets. For many OPEC+ countries, the nearly 50% decline in crude oil prices during the past six months is likely to exert significant pressure on their economies and financial reserves. “While breakeven prices for a company generally refer to the minimum oil price required for a well to be profitable, breakeven prices for a country measure the oil price that a government (in the case of a fiscal breakeven) or an economy (in the case of an external breakeven) needs to cover its expenses,” EIA stated.

“The most commonly used country-level breakeven price is the fiscal breakeven, the minimum price that a country needs to receive per barrel of crude oil sold for its government to meet its immediate spending needs and balance its budget,” EIA said. “The fiscal breakeven metric assumes that countries will adjust both their spending and—depending on their ability to influence the global price of crude oil—their production decisions to avoid deficits and smooth public spending. Computed annually by the International Monetary Fund (IMF) for most OPEC+ producers, the fiscal breakeven has varied considerably for most OPEC+ members (and non-OPEC+ members Qatar and Mexico), and since 2010 has ranged from as low as $37.90 per barrel for Kazakhstan in 2018 to as high $389.40 per barrel for Iran in 2020.”

The calculated external breakeven prices in 2019 of Saudi Arabia, Russia, Iraq, the United Arab Emirates (UAE), Mexico, and Qatar had decreased breakeven oil prices relative to their average levels during the last oil price crash in 2015. Conversely, breakeven oil prices in Iran, and Nigeria increased, while those in Kuwait and Kazakhstan remained about the same.

EIA’s report discussed many more methods of comparing the strengths and weaknesses of crude oil producers during this serious downturn. It is an excellent analysis so please go to www.eia.gov and go to This Week in Petroleum (June 17).

Alex Mills is the former President of the Texas Alliance of Energy Producers.