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Toss Another Old Assumption Aside–For Now

January 6, 2016

Recall how we were once told oil market forces had a high disdain for uncertainty.

When I was following the news this past weekend from the Middle East I wondered what would happen to the price of oil on the world market.  After all there was (and is) a lot to be concerned about following Saudi Arabia’s execution of a Shiite cleric.  Iran and others in the Shia world forcefully demonstrated their anger about the killing and left many outside that region to ponder the consequences.

But over the past days oil prices actually fell even as those tensions flared.  This news underscores the  fact our world has a vast over-abundance  of crude oil and there are of course positive and negative effects of this supply issue.

The upside is that gas prices remain low.  The downside is that those low prices make people think larger and less environmental vehicles are now worth buying.

The oil glut pressures Russia’s economy, but also serves notice that China is stagnating and not using the amount that otherwise would add to their overall economic output–which then weighs down international markets.

But for me the news from this weekend and then the lower slide of oil prices flies in the face of everything my generation always felt to be a fact.  Political unrest in the Persian Gulf is no longer a sure-fire source of price increases per barrel.

It will be almost a sure bet that Saudi Arabia nor their OPEC allies will not be lowering production at a time when such a move would only assist their main regional rival, Iran.  But if tensions increase and there is some event that threatens to curtail movement of tankers all bets will be off for how fast prices increase.

2 Comments leave one →
  1. January 6, 2016 9:14 PM

    I would add another benefit from less reliance on Saudi Arabia. That is we are able to look at our longer term interests about the treaty with Iran and think in larger terms than just economic oil links to the Saudis.

  2. tom permalink
    January 6, 2016 8:27 PM

    I was thinking of this today as well. Perhaps we heard the same media commentaries. The bottom line is that while fracking may be unpopular with radical lefties–the same troglodytes who freak out because we might add one more pipeline in a region already criss-crossed with them–the reality is that securing our energy independence lowers the changes of unnecessary global conflict. We will be better able to withstand what might have been catastrophic a few years ago.

    furthermore, the benefit to our most vulnerable citizens cannot be underestimated. Cheap and reliable energy benefit the poor most of all.

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