OPEC+’s 'Reasonable Oil Price Level' Notion and the External Breakeven in Saudi Arabia, Russia and Canada: Accounting for Economic Cycles and Pipeline Politics

Abstract

OPEC+ has set a goal of establishing a stable oil market and achieving a reasonable oil price that benefits all industry stakeholders and the global citizenry. But what price is reasonable? We examine the effect of the oil-price threshold on external balances with the aim of evaluating a country’s ability to finance its external deficits. The results would enable policy makers to gauge the outcome of Saudi-Russian led negotiations which affects the global economy and high cost oil producers. Building on Gnimassoun et al.’s (2017) work, we adopt a macroeconomic approach to explore the impacts of pipeline politics and geopolitics and account for cyclical movements using threshold analysis. Results show that a reasonable oil price is greater than USD 61–65/barrel for Saudi Arabia, USD 57–58/barrel for Russia, and USD 74–76/barrel for Canada. Russia has been able to weather the effects of Western sanctions and pipeline politics. In Canada, an increase in oil prices provides benefits that overcome “Dutch disease” under a high oil-price regime, but not under a low oil-price regime; the low oil-price regime accentuates challenges the oil sector faces; and the high oil-price regime reveals the need for policies to achieve macroeconomic energy security.