Oil Price Falls and Falls

It is odd that the price of oil falls while economic activity is increasing marginally, while the cost of oil extraction increases and while fewer new oil fields are being discovered. In the case of commodities the price usually depend upon supply and demand, and the producers of the supply always (usually) try to keep the demand high by limited the supply. This is normal economic activity.

If any commodity is flooded on the market two things will happen; the price of that commodity will fall drastically and being a commodity of which there is not an infinite supply, the owner of that commodity will have used up his stock of it and be left without a future income from that commodity.

So organisations exist to maintain high prices for all sorts of commodities, often with governmental or international acceptance and blessing. It happens in the case of gas, diamonds, uranium, steel and other major commodities.

However in the case of oil, 60% of the  oil export market is OPEC produced oil and OPEC nations produce about 40% of the world’s oil production. These are significant figures.

In the present market, we would have normally seen OPEC act to limit the supply of oil thus keeping the price high. OPEC has not done this, and doing this is what it has done since at least 1974, so we must try to understand why the OPEC nations are still selling oil in great volumes even though the price of oil is falling.

The simplest answers to difficult questions have (usually) more chance of being the right answers. The simplest answer as to why OPEC nations continue to sell oil without rationing it is that the OPEC nations need the money that they get from oil, even at the cost of maintaining long term oil wealth. They need to maintain the living standards of their populations, who are now used to more luxurious lifestyles than ever before. It is easy to give a benefit but incredibly hard to remove one. They also need it to pursue armed conflicts which some of them are financing; war is an expensive business.

There is one factor which should also be taken into account, although I do not know of any way of measuring it, but someone else may know of a way. The Islamic State of Iraq and Syria has captured oil fields and oil production facilities and must be selling the oil it has captured, probably at a huge discount. This then raises another question- who is buying the oil from the Islamic State and how much of it ends up the the car tanks and factories of the people of the nations who are fighting the Islamic State?

It would be nice to know that.

3 Responses

  1. I heard a rumor that Russia took out big loans to increase their oil production, hoping that oil would stay high for them to pay off the loans. US and Saudia Arabia agreed to lower oil prices to force Russia to defund their military as punishment for invading Ukraine. Coincidentally, Putin was in the news recently for saying something about a new cold war starting.

    • This is exactly what has happened Dan, the new cold war has already begun and Putin is in on things, look to see yet another wall being erected in the next few years somewhere in that region, it may not be physical but electronic, a wall of missile defences perhaps.

      I call it Tom and Jerry tactics, like a guy I know who once worked for GCHQ on the hill in Berlin, after that wall was erected, he was a code operator and flew in our Nimrod aircraft, where the Russian MIG’s would scramble and then ask for permission to lock onto them, they would wait until they did then drop like a stone back into friendly air space.

      TPTB are very predictable and simply playing with our minds through fear, the tried and tested subversion tactics, that change their name but not their aim.

      See this fella explain a few things

  2. I think Saudi Arabia has decided to pull the rug on shale oil production in the USA. This is now uneconomic and the USA is v unhappy. Saudi Arabia also sees its surrogate army being defeated in Syria because Russia is doing its best to support Syria. So by causing a glut Russia’s income is diminished and its military costs increased.

    I see that one of the alleged WTC hijackers wants to testify that Saudi money funded the attack (carried out by Mossad?).

    War no longer uses marching boots but fraudulent banking, commodity hoarding, false flags and propaganda. Why invade when you can steal by stealth?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: