With crude falling below $40 per barrel, it’s inching towards the break-even cost of OPEC (Organization of the Petroleum Exporting Countries) member countries. OPEC countries like Angola and Nigeria have a break-even cost of about $35.40 and $31.60. This cost only includes capital and operational expenditure. The data has been compiled by Rystad Energy. It published on November 23, 2015. Since the oil and gas industry won’t be economically feasible below these break-even points, it can force these countries to take a drastic step to reduce the impact of this factor on their economies. Experts don’t think that any country can afford to sell its natural resources at a loss to other nations.
Growing deficit and dilemma to cut the production
OPEC’s member countries aren’t able to finance their fiscal deficits due to lower crude oil prices. Since November 2014, OPEC—led by Saudi Arabia—has been adamant about cutting the production. In OPEC’s recent meeting, Riyadh talked about limiting the production. The oversupplied market is being flooded with high crude oil inventory levels.
Lower crude oil prices are a direct loss for crude oil exporters. Oil exports account for a significant portion of OPEC members’ GDP (gross domestic product). Countries like Libya and Algeria are facing a high fiscal deficit. Higher volumes are the only way to drive the revenue at lower energy prices. This can lead to lower crude oil prices.
US-based (SPY) energy companies operating with production mix of 70%–90% in crude oil include Energy XXI (EXXI), Northern Oil and Gas (NOG), Diamondback Energy (FANG), and Continental Resources (CLR). They fell by 61%, 28%, 25%, and 24% on a YTD (year-to-date) basis as of December 8, 2015.