The competitive floor to world oil prices

Abstract

In this OPEC crisis or the next, oil prices may fall to the competitive floor. At the high-cost end of the spectrum, it would take a price as low as $4 to produce an immediate shutdown of nearly half of capacity in the United States, and as low as $2 to do the same in the North Sea. A price of $10 would stop development investment for the bulk of U.S. oil and over a third of North Sea oil. Capacity would therefore decline by roughly 6 percent per year. At the low-cost end, assuming continued competition and completely independent decision-making, a price of $5 would make it profitable for the OPEC nations to expand output to about 60 million barrels daily. This price would be sustainable past 1995. This projection is not a forecast, however.