Oil Price Crash Could Push Venezuela Over The Edge

Sliding oil prices are putting enormous pressure on oil producers around the world.
Saudi Arabia has insisted it is willing to live with lower prices for quite a while as it seeks to maintain a grip on its market share. Kuwait also indicated its willingness to slash prices in order to keep output level. That sent oil prices lower on Oct. 14, as the markets reacted with a bit of surprise to the unwavering stance by OPEC’s leading members: WTI dropped 4.5 percent.
Lower oil prices are putting a strain on all producers, including Saudi Arabia, but Riyadh is hoping that the economic pain will be much greater for some of its competitors. That includes U. S. shale producers, which have higher average production costs.
In fact, an estimated 2.8 percent of total worldwide oil production could become unprofitable if oil prices drop below $80 per barrel, according to a new report from the IEA. Canadian oil sands projects topped the list, but U. S. shale might not be far behind.
But while Saudi Arabia tests the mettle of North American producers, it could be Venezuela that is the most vulnerable. As a fellow OPEC member, Venezuela has been the most vocal about the need to cut oil production and has called for an emergency meeting of the 12-member oil cartel. That is because Venezuela is in a much weaker position than many of the other member countries, and the recent drop in prices has raised alarm in Caracas.

This post was published at Wolf Street on October 16, 2014.