Oil at $35 is Economic Poison for Some Exporting Countries, But Good for U.S. Investment

Iain Reid, head of European oil and gas research for Macquarie Group, was speaking on Bloomberg Television.

Oil at $35 per barrel has been cited as the right price to make shares of U.S. explorers worth buying, but a prominent analyst says it is also the level that will cause chaos for the economies of various global oil producing countries.

Speaking on Bloomberg Television, Iain Reid, head of European oil and gas research for Macquarie Group, said, "We're going to see, probably before we see large scale bankruptcy, one or two of the major export countries getting into significant trouble."

He went on to note, "We've already seen credit downgrades for countries such as Brazil and Azerbaijan, and I think at $35 we'll see more of these – and that's why they're panicking at the moment."

Indeed, included in Geopolitical Futures' list of the 10 countries worst hit by the overall export crisis are Organization of the Petroleum Exporting Countries (OPEC) members Saudi Arabia (whose recent proposal to sell a portion of Saudi Aramco "gives us a sense of how badly the regime needs cash," according to geopolitical forecaster George Friedman); and Nigeria ("Its budget has been slashed but still assumes that oil will settle at $38 a barrel, which doesn't look realistic now," says Friedman).

Of the five countries he considers to be the most vulnerable to economic havoc in the foreseeable future, Friedman includes Azerbaijan, whose fiscal break even oil price per barrel he points out is $93.60 - a rate he calls "a threat" to the sustainability of the former Soviet republic's economy.

Still, Brian Singer, analyst for Goldman Sachs Group Inc., believes $35 will deter a rebound in shale output from occurring too early, keep the behaviour of U.S. companies unchanged, and help lift West Texas Intermediate to $55 to $60 a barrel in 2017: "We view our second-quarter 2016 oil outlook as an idealistic Goldilocks scenario," he wrote in a report.

"We would use volatility to add to positions of shale productivity winners and the next rung down."

RBC Capital Markets recently disclosed its conviction that the oil-driven economies of Algeria, Iraq, Libya, Nigeria, and Venezuela will collapse if the oil market doesn't soon stabilize.