Comment by pothibo | Hacker News Reader

Comment by pothibo | Hacker News Reader

There is something very weird with the collapse of the oil prices. It doesn't make sense. I know mainstream media have talked about offer/demand being the reason for this crash but it doesn't make sense.

It says China didn't grow as much as expected, etc. Well if that'd be a simple offer/demand, the price would have not collapsed so rapidly. Oil is not like housing where bubbles comes and go. It's usually pretty steady unless something happens (9/11, 1982, etc).

Also, price seems to be recovering now which indicate, to me, that it's not an offer/demand issue. The oil collapsing and recovering in a ~6 months period is just plain weird.

If I had to bet, I'd say it's due to ISIS and their access to oil and selling it at a quarter of the ongoing prices. I read a story about that a few months back how they had access to major oil field and were selling it insanely cheap on the black market to finance their operations.

Those are all wild ideas. But things are just weird, I'm telling you.

When oil is expensive, lots of techniques are available to extract it, shale oil becomes worthwhile, for example. Saudi Arabia is driving the price down by selling a lot of oil for very low prices.

If you're the United States or Russia, oil production is a relatively small part of the GDP. We use a lot of oil, but don't really care much where it comes from. Iran on the other hand, that's like 1/4th of their GDP. (I don't know if Iran or ISIS or even Iraq is the target. I don't think Saudi Arabia would have a problem with hurting any of them) Price changes there hit very very hard. Directly it lowers oil employment, it lowers tax revenue, and it affects all sorts of businesses in the area. Unemployed people don't go out to restaurants for lunch, which hurts employment and tax revenue even more.

So then, the problems become political. Countries and organizations need to start rethinking policies about how nice they're going to be to their neighbors.

I don't know what Saudi Arabia's goal is, but with a trillion dollars in the bank, they can sell at a loss for a long long time. Prices that low cut off the air supply for several of their neighbors. I think we'll see big changes in middle eastern governments policies before prices go back up.

Most likely Saudi Arabia's goal is to drive the new oil-producing techniques (shale), and especially alternatives to oil (solar, nuclear etc), out of business. At least for as long as they can.

I dunno. That seems very short sighted. Maybe that is indeed the case, and they are burying their heads in the sand (heh).

I think they're very aware that once oil hits $50 a barrel (or whatever) oil companies in the U.S. flip the switch and turn shale production back on. It's not "lost technology". If anything new technologies will ramp up even faster thanks to the recent boom.

My theory is that the U.S. & Saudis sacrificed domestic oil to punish the Russians. Saudi Arabia makes money either way, and hurts its enemies more than itself through low prices.

There is clearly a production boom in the US:

http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&p...

(I threw in Norway and Brazil because they are big producers that aren't OPEC)

The Saudis would normally have been expected to cut some of their production as prices fell, they haven't. I think their motivations for that are a big piece of the puzzle (and tend to agree with your theory that it is somewhat aimed at Russia.)

No doubt, but I think that boom is waning. My city is a terminus for large quantities of trains shipping oil to refineries in New Jersey. I've noticed a dramatic falloff in tank cars in the yard and sidings over the last 4-6 weeks.

Politically, having oil sands and fracked oil production decline is politically convenient, as people who live near the now overburdened train lines are screaming about explosive trains, and the keystone pipeline is pretty controversial.

Capitalism is prone to this. Oil stays high for long enough, lots of people jump in, drilling for new product. Each individually is smart, but collectively they over-saturate the market. Because there is this lag at each step, at each step the people collectively overshoot the optimum. Sometimes by a little, sometimes by a lot.

My favorite hypothesis is that the saudis want to punish the US for investing (and subsidies) too much in oil production. It put them in debts, and destroys their margins, but they can afford it, while the US cannot really afford to invest in oil rigs that have a too long ROI.

The US uses companies like GS to inflate or deflate commodities prices to suit its will in the global arena. Oil spent most of its time trading above 90 or even 100 a barrel for the most part of the last 5 years, when the real value was probably around 75-80. I imagine at some point some important guys at big US firms got a call to drop oil.

I also dont think the lower oil prices are a huge boon like they are said to be. global commodities have been in a near state of deflation. for something getting cheaper to be useful to someone, they actually have to be using it a lot.

furthermore, these things dont happen in a vacuum. no sooner does gas drop to low prices, politicians begin talking about gas taxes raised.

currently, retail and restaurants are doing really well though (as you would expect in cheap oil). but it seems it hasn't resulted in higher wage growth just yet.

Reply on news.ycombinator.com