In commodities space, there is a saying that lower price itself is a cure for the lower price. What it basically means is that if the price drops to a point which doesn’t incentivize producers to keep mining or pumping, supply would shrinkage automatically and would ultimately balance the market. However, that hasn’t happened in the oil market. Despite a decline of 60-70 percent since 2014, the market still remains well supplied both in the physical market and the futures market. A forced supply shrinkage by OPEC and participating non-OPEC producers of 1.76 million barrels per day has so far failed to curb supplies. And the major reason for that has been the reduction in production cost, thanks to improvement in technologies. In this article, we take a look at the production costs of major oil producing countries based on data from Rystad Energy. The following table not only compared production costs but divide it into two main categories, capital expenditure, and operational expenditure,

Except for UK and Brazil, the current oil price at $47.5 per barrel (Brent) remains above breakeven for major producers. It is unlikely for price-driven supply shrinkage o kick in at the current price.