About a month ago I predicted increases in oil prices due to the fundamental conditions of the economies of some of the large oil exporters. In hindsight this seems to have been a very poor assessment given that the price of oil has dropped by about $20/barrel. The reasons seem to be two-fold, first there have been anxieties about global growth going forward as China and other emerging markets show signs of slowing down. Secondly US shale production has increased much faster than expected, especially the Permian basin in Texas. American producers are able to sell their oil a lot cheaper than national oil companies in petrostates, in the case of American shale proucers sometimes need as little as $30 per barrel to break even. This amounts to a structural change in oil markets as American producers can sell a lot of oil for a lot less than OPEC states can. Because of the sheer size of the global oil trade individual oil producing firms are price takers rather than price setters, meaning that they sell at the global price rather than setting their own prices, so this doesn't mean that oil will from now on cost ~$30 instead it means that having producers able to sell at such a low price puts downward pressure on oil prices. This is good for oil consumers, at least if one ignores environmental concerns, and very bad for petrostates which tend to need very high oil prices due to high social spending. Oil in petrostates isn't just an industry, it's the foundation of the economy and the regime's legitimacy as the money gained from selling oil is often used to pay for social spending to keep the population happy. This means that while petrostates might make a profit when the oil price is ~$50 but they will usually have sizeable budget defecits as many of the governments' expenses are paid by high oil prices. I can't say wether or not current oil prices are an anomaly or the new standard, and after this last month's spectacular failure on my part I'm not going to guess. To me, all the reasons I gave last month still hold true I just didn't factor in the factors which point to a lower oil price. To quote an old Swedish saying: the one who lives shall see.
Sources:
J. Blas for Bloomberg https://www.bloomberg.com/news/articles/2018-11-21/opec-s-worst-nightmare-the-permian-is-about-to-pump-a-lot-more
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