Wednesday, September 10, 2008

Oil Prices are Relative

I was reading reports today about how oil prices are falling and are at new lows--around $100 per barrel. And with that comes the "analysis" about how this is going to "hurt" states like Iran, Russia, or Venezuela. Then I was poking around in some news archives and reading about how such states (back in 2006) were amassing record amounts of wealth when oil was $70 / barrel ...

A bright lady called Yves Smith who runs a most useful blog on finance called 'naked capitalism' linked to a Bloomberg story on the recent oil production cut announcement, and commented: 'Now we know what the target is.'

(See http://

If she is right -- which I suspect she is -- a question arises as to whether in current conditions the OPEC countries can control production sufficiently successfully to keep oil prices falling significantly below that target.

One would imagine Russia would be likely to be a willing partner.

Given the likelihood that there is a great deal of truth in the 'Peak Oil' hypothesis, one would have thought that both the OPEC countries and Russia had strong incentives to try.

Whether they have the capability is of course another matter.
One thing that is very different than in the 1980s--this time Riyadh and Moscow are on the same page.
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