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Crude Oil Outlook in 2016: Fed, Putin, and Iran Will Be the Focus

PART:
1 2 3 4 5 6 7
Part 4
Crude Oil Outlook in 2016: Fed, Putin, and Iran Will Be the Focus PART 4 OF 7

How Long Can the Price War Continue in Crude Oil?

Break-even cost for top oil exporters

According to data compiled by Rystad Energy, the cost of production per barrel of crude oil is $17.20 in Russia—compared to $9.90 in Saudi Arabia. Saudi Arabia accounts for 15.7% of the world’s total crude oil reserve. Russia (RSX) accounts for 6.1% of the world’s total crude oil reserve. However, there are other reserves in the Arctic Circle. This can increase its share in the total crude oil reserve.

How Long Can the Price War Continue in Crude Oil?

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Venezuela accounted for 17.5% of the world’s total proved crude oil reserve in 2014. BP (BP) conducted a study. It’s break-even cost is ~$23.50.

The other member countries like Iran and Iraq have break-even costs of $12.60 and $10.60. Kuwait has the lowest production cost of ~$8.50. It takes a break-even cost of $12.30 in the UAE (United Arab Emirates) to produce one barrel of crude. Gazprom PAO (OGZPY), Lukoil (LUKOY), and Tatneft (OAOFY) represent the large-cap Russian ADRs (American depositary receipts) in the oil and gas sector. The above chart shows the break-even cost for different countries.

Break-even cost for other countries

The data suggest that the cost to produce a barrel of crude oil in the US (SPY) is $36.20. In Canada, it costs $41 to produce a barrel of crude oil. Imperial Oil (IMO) and Suncor Energy (SU) are Canada-based integrated oil and gas companies.

In the next part, we’ll discuss the impact of Russia’s presence in the Middle East. We’ll see how it impacts the crude oil market.

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