An ongoing price slump is rattling the industry and weakening petrostates. How will low prices change the world? Here’s everything you need to know:
How cheap is oil?
Prices have hovered between $40 and $50 a barrel for the past year — far below the pre-collapse high of $147 a barrel in 2008. The U.S. shale revolution continues to cause a global glut in supplies of the liquid fossil fuel, depressing the price, and energy company Shell says it is bracing for a world where oil prices might stay “forever low.” Oil prices have historically been highly volatile, and demand for the commodity is higher than ever. But if the glut continues, it will pose an existential threat to the monarchy ruling Saudi Arabia, which relies on oil for as much as 70 percent of the kingdom’s income. Other petrostates, including Venezuela and Russia, are already in a state of economic crisis. Rabah Arezki, a commodities expert at the International Monetary Fund, says that the growing supply of natural gas, a potential electric car revolution, and the push to further develop clean energy to combat climate change all will combine to suppress demand for the foreseeable future. The world may be “at the onset of the biggest disruption in oil markets ever,” Arezki says.
What is causing the glut?
The biggest factor is an American petroleum boom. Oil and gas businesses in Texas and North Dakota upended the entire industry in the late 2000s when they pioneered new fracking techniques — blasting fluid into layers of shale rock to unlock hard-to-extract oil and gas deposits. That sent a torrent of oil flooding into the market: U.S. crude output rose from 5.5 million barrels per day in 2010 to 9.2 million barrels at the beginning of 2016 — about the same as the Saudis produce. New oil from Iran and the Canadian tar sands added to the glut. American motorists are enjoying the resulting low gasoline prices, but for petrostates, it’s been a nightmare.