Seeking an "Economics for Dummies" - What up with oil prices anyway?

We all know the price for oil has plummeted... but all the news really tells us is that "Demand has stalled, causing oil prices to drop."

To your average understander of supply and demand, that makes the most low level, single-variable amount of sense, and probably is enough for most to say "oh!" and go about their lives, content with the lower price at the pump. "Hooray! Now I can spend all my stuff on things!!"

But there are more factors present here. There's more to this supply and demand situation than "no one wants oil anymore". We obviously all want oil. Lots of it. The majority of the uses for oil, and oil products have not reduced in the slightest. In fact, during winter in North America, the demand for fuel for transportation, for heating and for thousands of "what-have-yous" just goes up. Single variable supply and demand understanding should point to an increase in oil prices during winter. More things need oil, so the price should go up (assuming steady supply from producers).

So... why is the price so far down?

I'm looking for an explanation that will make sense to an average person. So few people are economists, and I personally have no interest in becoming one simply to understand this. (Complex multivariate analysis just makes me shudder.) Can anyone boil it down to something that makes sense? Or is this one of those things that just doesn't actually make sense?

Seen an article saying that OPEC was going to let it go down to $40 a barrel. As far as i know it is about 60 a barrel to profit. They are playing politics with Russia Iran Iraq Ect.. Trying to ruin their economy YES OPEC controls prices by controlling output. Worked that way for years.
OPEC isn't scared of $40 oil
By Gregory Wallace @gregorywallace December 14, 2014: 11:31 AM ET
Low oil prices are a double-edged sword
Low oil prices are a double-edged sword
NEW YORK (CNNMoney)
OPEC won't rush to cut oil production even if prices fall as low as $40 per barrel, one of the cartel's members said Sunday.

The energy minister for the United Arab Emirates told Bloomberg at a Dubai conference that the middle eastern oil producers believe "the market will stabilize itself."

"We are not going to change our minds because the prices went to $60 or to $40," Suhail Al-Mazrouei said.
money.cnn.com...
.a reply to: CrikeyMagnet

a reply to: roth1
If the target is Russia, why is OPEC's official target point above Russia's break point?

a reply to: CrikeyMagnet

My understanding is that it is not a matter of low demand, but a glut on the supply side. OPEC - so I hear - is not slowing down production and it actually selling oil cheap.

Seems like it's OPEC's intent to glut the market, drive down prices, push other produces out of business, then pick up the slack when the dust blows away. They have the cash reserves to do this and will probably be able to outlast their competition.

Sounds like anti-trust stuff, but who's gonna penalize OPEC?

a reply to: incoserv

This isn't an OPEC thing.

Just Saudi Arabia.

The US is hitting record levels of production, which has lead to a supply glut. I imagine that the vast majority of the drop, however, stems from commodity traders exiting their positions.

a reply to: incoserv

Doesn't that basically mean that the economic stability of the developed world is entirely dependent upon a foreign player who is actively trying to destabilize it? That sounds like "act of war" territory.

a reply to: CrikeyMagnet

The oil market has nothing to do with supply/demand. It is a futures market artificially manipulated by futures traders. It is not a truly free market system.

Countries dependent on oil and gas sales are taking a beating with these low prices, especially Russia and Venezuela. Makes me wonder if OPEC is trying to hurt the Russians or are trying to slow us oil production.

originally posted by: peck420
a reply to: incoserv

This isn't an OPEC thing.

Just Saudi Arabia.

Yep. And they're taking out their competition. Their break even point is extremely low, and they have lots of money in reserve.
Canada's "The National" news has been covering it quite a bit.

It's proof of all of those theories that a select group can in fact control the global price of oil at will.

If they are threatened by growing production elsewhere, they can drive the price so low that the competition can't survive.

It's economic warfare.

Think the target is more than them. But i bet it hurts them a lot. Good part of their economy.a reply to: peck420

They're playing with the prices only to hurt Russia. Don't worry, we'll be paying the piper next spring-summer. Enjoy it while it lasts.

originally posted by: UnBreakable
a reply to: CrikeyMagnet

The oil market has nothing to do with supply/demand. It is a futures market artificially manipulated by futures traders. It is not a truly free market system.

There never was a truly free non-manipulated market system where all people have all the information and no one is playing the market with an advantage that other do not have.

If there was then it would create an equilibrium and all cost would be equalized based on effort after a while. That will not happen when we have a banking maffia creating a monetary system that is an pyramid power control structure that uses trickle up power and resources to the top controllers.

The US lost all possibility to be a free market the day the Bankers got their hands on the US monetary system (FED creation December 23, 1913). After that US was doomed to be controlled by the bankers and the free market idea is only from my point of view spin and propaganda to keep people uninformed of the feudal system that the bankers have created. People love to think they are free so even if they are not if you repeat it like a mantra then after a while they will brainwash themselves to not see the bars on their prisons (the economic system).

Even if we call US a democracy or republic it is not it if part of the system (the monetary system) is based on a feudal power pyramid where the bankers can create money from nothing that the lower levers of the pyramid cannot.

Namaste

How much reduction are the Saudis getting off of their Arms bill? I'm sure the West will reciprocate for getting a deal on the oil.

It will no doubt hurt Russia, but also give the West the opportunity to stock pile oil, until it's time to a) sell it at a huge profit or b) use it to fight a future war.

Meanwhile the Saudi's get cheaper military equipment to supply the likes of ISIS.

originally posted by: UnBreakable
They're playing with the prices only to hurt Russia. Don't worry, we'll be paying the piper next spring-summer. Enjoy it while it lasts.

Wont matter much in the end since BRICS will increase trade instead so that EU and US becomes unimportant to their prosperity. Even if the western banking maffia sucks the BRICS are also playing around with power pyramid schemes (oligarchs) so in a way they are not better. But at least when BRICS go to gold backed money you can have real physical value of something and not just be a victim in the inflation pyramid Ponzi scheme where you automatically lose value to the banksters every day.

But at least they are not Salafi/Wahabbi fundamentalists that many Saudis are including the House of Saud that uses the Salafi/Wahabbi for their own gains.

a reply to: LittleByLittle

You put it much more eloquently and knowledgeably than I could. My point was that the price isn't based solely on supply/demand as someone had alluded to.

a reply to: Cobaltic1978

About Turkey and ISIS and Saudi Arabia/Quatar.

Is the gas pipeline thru Syria still in the makings towards Turkey when Assad is removed or have the Russia Turkey pipeline (with gas hub) changed those plans?

I would think Turkey might want supplies from both Russia and Quatar/Saudi Arabia to sell to EU as a gas transit country so that they are not dependent on only one side.

What are your thoughts?

originally posted by: UnBreakable
a reply to: LittleByLittle

You put it much more eloquently and knowledgeably than I could. My point was that the price isn't based solely on supply/demand as someone had alluded to.

I'm just building on your foundation that you laid. Volleyball analogy: If you put up "the ball" perfectly like that I cannot stop myself from trying to make a point.

Namaste

originally posted by: snowspirit
Yep. And they're taking out their competition. Their break even point is extremely low, and they have lots of money in reserve.
Canada's "The National" news has been covering it quite a bit.

I would hope CBC is all over it, we are one of the primary targets.