Low oil prices reshaping the world economy

PHOTO: Bloomberg

TOKYO - Cheap oil is becoming the norm for the world, radically changing the dynamics of the global economy.

A sharp increase in the global supply because of the shale-oil revolution and economic slowdowns in major emerging economies have combined to cause oil prices to plummet. With these factors likely to remain in place for the foreseeable future, the world will have to adjust to the huge implications of low-cost crude.

Standing in front of a drilling rig in the Eagle Ford shale oil and gas field in south Texas, Ted Smith of local oil company Tidal Petroleum was sanguine about the firm's business outlook, despite the depressed prices. The well can generate a profit even if the price of crude sinks as low as US$25 per barrel, he said.

The break-even point for US shale oil was estimated to be around US$60-80 per barrel, far higher than that of Middle East oil, which can be profitable even at less than US$10.

But a surge in technological innovations has made shale oil production far more cost-efficient. Many shale-oil regions have survived the fall of crude prices from the US$100 level to the US$40 range in one year.

Despite decreased new investments in shale oil, output has actually increased by 5 per cent.

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