Oil

I am confused about the price of oil, or rather I am confused about why the price of oil has dropped so dramatically.

There appear to be so many contradictory bits and pieces of information about the the price of oil, why it is dropping and what it all means for Canada and the rest of the world. Quite frankly none of it make any sense to me. In fact the whole discussion, at least from my limited and uneducated perspective (at least in terms of business) sounds like a bit of silly made up talk designed (poorly) to make the pundits sound as if they know what they are talking about. These meaningless conversations also allow people to avoid dealing with the important issues of whether or not we (meaning the planet) can afford to continue to use fossil fuels.

This time last year the price of oil was high in part (or so we were told) because the demand was so high. This year we are being told that the price of oil is so low because the supply exceeds the demand. Of course the demand this year, if anything, is higher than last year if for no other reason than there are more car drivers on the roads of China and India. If there is a glut upon the market it is because a few countries, most notably Saudi Arabia, have pumped their easy to access and easy to refine oil out of the ground at a rate much higher than normal. The argument as to why the Saudis are doing this is that they want to drive the other countries/companies whose oil is more expensive to produce out of business.

And that is the argument that does not make sense to me. The Saudis are losing $40-$50 a barrel by increasing the available supply of oil. I don't know how much oil is in a barrel but I suspect that they are losing millions of dollars by increasing the supply. It doesn't make any sense. The oil that was being torn from the ground in northern Alberta, while it may rest in the ground a bit longer because of the lower price - will still be there when the Saudi oil is gone and the price is back up to a $100+ a barrel. You can't drive someone out of business when they have something that eventually everyone else will want and will have no choice but to pay what ever they have to to get it. Those companies may produce less income in the short term, but I think oil production is a long term game. The Saudis can not win this game by flooding the market.

It should be noted that in the past Saudi Arabia has be quite willing to manipulate (limit) the availability of oil to raise the price.

There are only two arguments that can explain this apparent mis-management of resources on the part of the Saudis. One is that they have so much oil available to them that they can afford to earn less than anticipated; that they can afford to wait the others out until all other sources are closed down or, two that they are getting some sort of tangible reward for doing what they are doing. What would make them willing to lose national income?

Other than Saudi Arabia, Nigeria, Venezuela, Russia and Iran appear to be the countries most adversely affected by  the dramatic drop in the price of oil.

Question - how many of those countries are seen as an enemy of the USA or a threat to those large multi national companies that control the oil business?