The world is poised for a year of surplus oil production in 2025. One of the most traded commodities in the world, crude oil and its demand are important barometers for the health of the global economy. With the cost of living crisis affecting consumer behavior in major markets such as China and Germany, economic stagnation has already resulted in oil production outperforming demand to a degree that benchmark prices such as WTI and Brent have stayed far below 80 U.S. dollars per barrel since summer 2024. This trend is expected to continue well into 2025 and 2026 as greater upstream activity in non-OPEC countries, such as the United States and Guyana, is set to flood the market with more oil.

Published by Statista Research Department, Mar 7, 2025

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Because of advancing technology, the variation of oil, and the differences in deposit quality, there is also no single profit point for companies extracting oil. The Brent oil price is often used as a benchmark price for oil.

It represents an average light, sweet oil, so countries price off of the Brent price, with a discount being applied per how far their product diverges from the light and sweet ideal. Thus, right off the top, some countries see a lower price per barrel because their product is not light and sweet.

The differences increase when you look at the costs to extract a barrel of oil at different companies and in different countries. At a Brent crude price of, say, $80, there will be companies that are extremely profitable, because their cost per barrel might be $20.

There will also be companies that are losing money because it costs them $83 a barrel to extract. In a perfectly rational economy, all the companies losing money would cease or dial back production as the price fell closer to their break-even point, but this doesn’t happen.

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Because holding land for exploration is expensive, and drilling is sometimes a condition of the contract, companies will drill on deposits and keep wells going even if prices are depressed. As with any resource-extraction industry, production can’t turn on a dime. There are labor needs, equipment costs, leases, and many other expenses that don’t disappear when you ramp down production. Even if some costs, like labor, can be eliminated, they become a greater expense in the long run, as the company must rehire everyone when prices recover – with every other company also hiring in the suddenly competitive labor market.

Instead, oil companies often look to higher prices in the future and will aim for a well to pay off over a period of years, so the month-to-month fluctuations in price are not the primary consideration for them. Large oil companies have strong balance sheets that help them ride out down years. They also have a variety of wells with conventional and unconventional deposits. Smaller companies tend to be regionally concentrated and have much less variety in their portfolio. These are the companies that struggle during prolonged price drops. Similarly, countries like Canada, with largely heavy oil deposits, see profits disappear with low oil prices because their cost per barrel necessitates a higher price per barrel than do OPEC and other competing nations to keep producing.

The last economic consideration – and it should really be the first in most industries – is the question of supply. There is no doubt that the amount of oil out there is large, but it is finite. Unfortunately, we will never have an exact number that would allow us to figure out the proper price that would keep the world fairly fueled. Instead, the price of oil is based on the supply at the moment and the likely supply in the near future, based on projected production. So, when companies continue to produce in a period of oversupply, the price of oil continues to weaken, and the companies with the most uneconomic deposits start to flounder. The increased production of oil in the U.S., for example, has kept oil prices much lower, because all that supply was previously not coming to the market.

There is no doubt that oil extraction follows the rules of supply and demand. The tricky part is that there exists a great variation in how much it costs to bring one barrel of oil to market. Added to this is the fact that uneconomic products and oversupply are frequent risks for oil companies and their investors. This is, of course, why investors are also attracted to the sector. If you follow a few basic factors and calculate the cost per barrel of some of the smaller companies, it is possible to profit from the swings in the benchmark oil prices, as uneconomic deposits become profitable. After all, Emin Huseynzade ,the overall economics of oil extraction point of the fact that is that there is money in it – both for extraction companies and their investors.

Thanks for the answering my question Mr. Stephen I. Ternyik

This data from Statista is a little bit old. What do you thinking about it? Is there any huge change in cost? So this data was published 10 years ago.

Extraction cost in Russia is currently a lot higher than in Saudi Arabia: Oil extracted onshore was USD 42 per barrel, whereas offshore extraction was USD 44 per barrel. The producers that top this cost are the US with USD 49 per barrel, Kazakhstan with USD 46 and Venezuela’s offshore extraction with USD 63 per barrel. The cost per barrel in Saudi Arabia can be estimated at USD 17. We can assume, Emin Huseynzade , that the cost of oil extraction has risen more in former low cost extraction areas than in the high cost extraction areas.