Some readers may ask themselves: at what price do oil producers start losing money, and how does this affect government budgets that rely on energy income? In this article we look at Canada and the main players: US, Saudi Arabia, and Russia.

Ever since Saudi Arabia and Russia flooded the world with oil, markets watched with a close eye, waiting for someone to blink first as prices dramatically collapsed. 

Last week producers agreed to a 10% reduction in output, but it may not be enough to solve the world’s current oil glut. Energy demand in our new Covid-19 reality is expected to be  lower than usual, especially in the near term. This will continue exerting downward pressure on prices.


It is no secret our oil sector suffered greatly since the last crash in 2014, leading to massive layoffs and government shortfalls.

The first glimmering signs of recovery were just breaking the horizon when these March shocks hit. So what is the oil sands’ bottom line, and what is the bottom line for the Canadian economy if prices remain depressed?

Quoting Natural Resources Canada, our energy sector represents over 10% of GDP and indirectly supports over half a million jobs. The severity of these numbers speak for themselves. 

And the break-even price for companies to stay revenue neutral? Although it is difficult to pin down exact numbers, estimates put it in the mid-$40/bbl range.

In spite of outliers like Suncor, who can operate at just under $30/bbl, any prolonged time at these current prices will be very painful, not only for industry, but for every day Canadians.

Although our energy revenue is nowhere near as critical to federal coffers as other countries on our list, sustained low oil prices still have drastic implications.

Direct effects will be to those who lose their jobs, and companies who are unable to stay afloat.

Indirect knock-on effects will come in the form of either larger deficits, service cuts, or increased taxes. These will be felt by all Canadians.


Our neighbour to the south is the world’s largest oil producer, thanks to the development of shale deposits. This has riled the consternation of Russia and Saudi, who view increased production from any country as a threat to their market share. The more the US produces, the less other countries can sell to the them, and the more downward pressure on prices.

One reason Russia and Saudi want to oversupply the world is to price out shale and other high-cost producers, then supply those vacated market shares with their own oil.

The bottom line for America? Their energy industry counts for far less of GDP than it does for Canada: only 1.7%. Break-even prices on domestic production average around $50/bbl.

However, the US is the world’s largest consumer of energy, and any decrease in domestic production would have to be filled by more imports from other countries. 

At these current prices, American producers will definitely feel the pinch. Although, with the small impact energy has on the economy, US effects are primarily geopolitical.

Saudi Arabia

The Saudi situation is markedly different in two ways: their extraction costs are the lowest, but their government is the most dependent on oil revenue.

They claim a production break-even point of $10, which is questionable since they struggled to maintain profits when oil was at $45 in 2016. But there is little disagreement their oil is among the cheapest to produce.

But, for the government to balance its budget, oil needs to be at a whopping $80/bbl.

And this is where Saudi’s weakness lies: they need high prices just to keep their entire country out of the red. 

Their efforts to diversify their economy will also lack funding, feeding into the vicious cycle of energy dependence.

They claim, like Russia, to have enough cash reserves to wait out lower prices. But they have external stressors Russia does not.

In early March, the government took action to mitigate a possible coup. Heap on the fact that because their oil company, Aramco, recently went public, their oil production also has a duty to shareholders. Aramco now faces more public scrutiny, and their public value will continue drop the more it is used for political ends.

Saudi Arabia has the most pressure points of any country on our list.


Russia sits comfortably in the middle of the pack, both in respect to production bottom lines, and government sensitivity to oil revenue.

Indicators show their oil production is cheaper than North America’s. However, oil revenue constitutes a much larger share of GDP: 30%.

Their budget break-even point is $40/bbl, and claim they can survive three years of oil between $20-30/bbl because of their National Wealth Fund. 

Although Russia depends on oil revenue more than their North American counterparts, they have a less sensitive government and energy industry than Saudi Arabia. This makes them relatively well positioned to endure lower prices.

So where does that leave everything?

In spite of the recent oil cut agreement, we should expect depressed energy prices for the duration of this year, at the very least. 

Travel restrictions and lockdowns from the Covid-19 pandemic will put such a downward strain on oil demand that even the latest cut to production is not expected to make a significant difference.

Canada’s energy employment and revenue prospects in the short term are very bleak.

But prices will rebound. As we have shown, neither companies nor countries can realistically operate at anything close to what we are seeing right now. And estimates for the worldwide break-even point is around $30/bbl.

Either there will be another curtailment, or demand will recover, or less efficient producers will be priced out, all enabling surviving producers to raise their prices.

It is a matter of simple economic necessity the market eventually recovers — the only question is how much of a hit Canada takes in the meantime.

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