How low can oil prices go? In the current price war, the global market price needed to support government budgets isn't really the main issue. Nor are the total costs for exploration, drilling and transportation.  

What matters are marginal costs -- the expense of retrieving oil once the holes have been drilled and pipelines laid. That number is more like $10 to $20 a barrel in the Persian Gulf, and about the same for U.S. shale-oil producers. The estimated $50 to $69 a barrel break-even point for most new U.S. shale-oil production is less relevant.  

Developing countries that depend on commodity exports for hard currencies to service foreign debt will produce and export even at prices below their marginal cost. Until some major producer chickens out and cuts production, oil prices should remain low. They could decline a lot more than the 50 percent drop so far. 

Tomorrow, I’ll discuss the winners and losers from collapsing oil prices and explore ways to make money in this fast-moving drama.

David Fuller's view

We know that the Saudis are in the strongest position in this oil price war, although they are unlikely to win more than a Pyrrhic victory, in my opinion, for reasons previously discussed. 

The marginal costs of $10 to $20 mentioned for US shale above, even if correct, are misleading in my opinion because production drops steeply in a matter of weeks, necessitating that extractors move on and drill another new well to maintain production.  They are unlikely to do this for long if prices are trading in the $50s region, let alone lower.   

Meanwhile, lower oil prices are very good news for consumers and most economies, primarily oil exporters excepted.