The current drop in oil prices is due to increased production from Saudi Arabia. What does this mean? It means that Saudi Arabia has not peaked in oil production, but that is all that it means. It does not mean that we are not facing depletion, nor does it mean that the oil market can handle low prices over the long term and remain stable. Remember that the North American shale oil boom, as well as other unconventional projects worldwide, need a specific level of price support to remain economically worthwhile.
Additionally, producing nations that depend on oil exports for national
wealth and well-being (much of the Middle East, and Russia) have their
own specific price support needs. These levels vary depending on the
economic makeup of the country in question. It is fairly settled that
below a specific price point, and oil-export dependent nation will begin
to face significant socioeconomic and even political challenges.
in the face of the higher prices required by new unconventional sources
and the higher prices required by such nations, why is Saudi Arabia
allowing oil to sink to $75/barrel? More to the point, Saudi Arabia's
production is intentionally driving down the price of oil. It is a form
I agree with others that this is a political favor to
the US. Yes, the US economy benefits from lower oil prices. However, the
bigger and more important benefit (at least to the current
administration) to place economic pressure on Russia and Putin. The US
has supported Saudi Arabia for a long time and this is just returning
the favor. This is a cunning geopolitical move designed to destabilize
Russia. AND - our administration is willing to put domestic oil shale
production under the gun to do it!
The last thing we need is for our
economy to get used to lower oil prices just to have them snap back up
once the US has completed its dirty deed, allowing our economy to grow
then shoving it back into recession. Also, lower oil prices will have a
destabilizing effect on nations OTHER than Russia. We are playing with