Originally posted by Voxel
Not better. Saudi oil is simply much cheaper to extract. Being much cheaper, any increase in supply would have a larger effect on the price of oil
around the world.
Well thats a novel argument. It is also fundamentally, completely, and unequivocally wrong. Oil is a Fungible product. That means that no matter where
oil comes from, or how much it costs to extract, it costs the exact same amount. The amount it costs the Saudi's to extract the oil only matters to
the Saudi's, noone else.
The global price of oil is determined by the global supply and demand, not the costs of extraction. For virtually every source of oil today, the cost
of extraction is far below the global price. As an example oil shale costs about the equivalent of 70 dollars a barrel extract usable energy from,
which is alomost double what it costs SA to drill, yet they are sold at the exact same per barrel price. There is NO difference as far as the global
comoddities markets are concerned, between 100,000 barrels of SA oil, or 100,000 barrels of oil from anywhere else, so far as effecting the price of
oil overall is concerned.
I hate using analogies but I really want a doughnut right now:- If you bought 1,000 doughnuts for $5,000 dollars then each doughnut cost $5.
- If you added 500 doughnuts to your order at $4 per doughnut it would raise the amount to $7,000 or about $4.66 dollars per doughnut - a savings of
only $0.34 per doughnut.
- But if you found a vendor who was willing to sell you 500 doughnuts for $1 each then your total only comes to $5,500 or $3.66 per doughnut - you
saved about $1.34 per doughnut this time.
- Overall you lowered the cost by an extra $1 per doughnut by finding a cheaper seller.
Again, oil is fungible. Regardless of where it comes from, it all costs exactly the same.
Jon