Abstract
The issue of modern development in the oil industry has become extremely urgent. In 2020, for the first time in history, the exchange price of oil crossed the negative threshold, radically changing the understanding of economic processes in the industry. This paper examines the consequences of this stressful situation in the context of the financial stability of global oil companies in conjunction with ensuring the budgetary balance for resource-exporting countries. In the course of the study, the factors that influence the pricing in the oil market have been clarified. The authors have calculated break-even oil prices for the world’s largest oil companies Saudi Aramco (SAU), ExxonMobil (USA), British Petroleum (GBR), and Rosneft (RUS). An analysis of the fiscal break-even of oil prices has shown that Russia, compared to the Gulf countries, has a greater margin of budgetary stability, since the break-even price of oil is several times lower than in Iran, Iraq, and Saudi Arabia. Based on the assessment of the operating leverage of the oil companies, a limit was set for the decline in profits as a result of the drop in oil production. The calculation of the target price for large global companies has shown that Rosneft has the highest price level due to high variable costs, and the target price for Saudi Aramco is approximately at the same level. ExxonMobil and BP’s target price levels are lower. The results obtained confirm the need to continue searching for solutions to optimize costs to lower the breakeven level of oil production. Keywords: oil, break-even price, prime cost, pricing factors, budget balance, oil market, price shocks. JEL Classifications: L21, G31, Q49 DOI: https://doi.org/10.32479/ijeep.11260
Highlights
Oil will remain the main source of energy for the foreseeable future, necessitating a balance between global supply and demand
The main supplier of oil to the world market regionally remains the Middle East, headed by Saudi Arabia, and in the organizational sense – OPEC, which includes most of the oil-producing countries of the Middle East region
In any case, the oil price is within certain boundaries of the price corridor, where the break-even level is one of the targets
Summary
Oil will remain the main source of energy for the foreseeable future, necessitating a balance between global supply and demand. The main oil consumers, the countries of the Asia-Pacific region and North America, are the most vulnerable to economic shocks (Raputsoane, 2019; Rau, 2017). Crisis events in these markets caused sharp fluctuations in oil prices. When oil prices and profitability of companies rise, the oil industry expands into new territories (Kleinberg, 2014) In such conditions, economic assessments come to the fore, since it becomes important to allocate limited investments and capital as efficiently as possible. Funding for oil production projects is based on price expectations, which are closely related to the break-even point In this regard, it seems relevant to study the impact of price fluctuations on the operational financial stability of oil companies
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