As the oil price war unfolds it becomes easier to understand the outcome. There is ongoing speculation about the motives of the main players. Is it a battle between OPEC and US shale? Or a battle by the USA and Saudi Arabia against Russia and Iran? I lean quite strongly towards a market driven version of the former and believe that OPEC (i.e. Saudi Arabia) cannot win against the USA. Low oil prices are a major benefit to the US economy and US citizens, a disaster for OPEC and Saudi Arabia. Figure 1 shows how halving oil prices slashes export revenues for the exporting countries while halving the cost of oil imports to the USA.
Figure 1 Oil export and import figures based on BP 2014 for the year 2013. Values based on constant $2014. The average oil price in 2014 was $110, shown in blue. Had the oil price been $50 in that year, the value of oil exports to the exporting countries would have halved (red). On the other hand, the cost of oil imports to the USA would also have halved. One man’s poison is another man’s candy.
Methodology
The methodology employed is very simple and some may argue too simple, but it serves to demonstrate a few points. I have used BP oil production and consumption data, average annual oil price data and World Bank GDP data, all for 2013 to calculate the value of production, exports / imports compared with GDP. Exports are simply the difference between production and consumption. I’m aware of the limitations here.
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