Russian is nearing record oil production
Saudi Arabia cut its official export price to Asia on Wednesday and Russian is nearing record oil production. Kurdistan is also producing more oil and by some estimates Iraq has the potential to triple its output over the next 10 years. Saudi Arabia and Russia depend on oil exports for their economic health, so look for these governments to protect their market share by lowering prices if necessary.
A sustained collapse in oil prices could hurt Texas in innumberable ways. First, domestic oil production depends on expensive techniques, including hydraulic fracturing, horizontal drilling and injecting old oil fields with carbon dioxide. Our global competitors do not have to rely on those methods, and therefore can produce oil more cheaply. The prices foreign companies charge for their oil also tends to be set by governments, not through free-market competition.
Every well is different, but the conventional wisdom is you can't make a profit on some U.S. wells at less than $80 a barrel. That's the price where exploration stops and production begins to slow down. That means lost jobs. The Texas economy and the state budget are also intrinsically tied to oil prices, so $80 oil will impact every Texan.
This is the free market at work. Prices went up, so more companies got into the business and began producing more oil. The industry may now be producing more oil than the market wants, and the price is dropping.
