Thursday, November 27, 2014

Why oil-producing countries can survive low oil price

How can oil-producing countries survive low oil price? We hear that Russia needs the price to be over $100, but they don’t support cutting production to hold up the price.

Why? Because their budgets are  balanced in their own currency, not dollars. And they can devalue their currency - almost all can. Ecuador can’t; they use the US dollar. Venezuela … I don’t quite understand, but it’s part of the mess Hugo Chavez made in making his oil-rich country poor! They are in trouble. But Russia, Iran, etc. can survive the fall with currency manipulation. If the price drops 10% and they devalue by 10% they get the same price in their own currency.

For the full explanation see: Bloomberg