What if Saudi is rushing to sell oil before it's worthless? [View all]

[yurbud]

Last edited Sun Apr 3, 2016, 02:37 PM - Edit history (1)

Possible explanations for Saudis high production that's driving down prices haven't quite made sense.

If they were doing it to help US foreign policy squeeze oil rich countries like Russia and Venezuela that aren't following our orders, that is a pretty big hit to take for the team, given that they have a finite amount of oil.

Putting tar sands and shale oil out of business also doesn't quite make sense for the same reason.

Slowing demand would be a good reason to cut or at least not ramp up production until demand increases.

But what if they realize they are selling whale oil for lanterns when everyone is about to switch to kerosene? Or more on point, they are selling gaslights when everyone else is about to buy their first lightbulb?

Then slowly doling out your product to maximize profits would make no sense. You would want to get whatever you could for it before it's worthless.

That makes more sense than other explanations, and it couldn't happen to a more deserving, medieval, terrorist-supporting royal family.

Here’s a simpler hypothesis: Maybe the
Saudis aren’t cutting production in the face of low prices because huge portions of their oil reserves might eventually become worthless. That’s what James Rowe, an environmental studies professor at the University of Victoria, thinks.

If that happens, today’s oil prices won’t look low — not when there’s an overabundance of an asset that can’t be sold. But oil prices are the lowest they’ve been in 12 years, you say. How could they ever be considered high?

This explanation relies on two related ideas: a carbon bubble and stranded assets. The carbon bubble refers to the fact that energy companies around the world are sitting on five times more fossil fuels than can be burned, the research nonprofit Carbon Tracker estimates. Those assets, worth about $2 trillion, are referred to as “stranded assets.”

So what does that mean for an oil company that controls a state? It might as well sell as much oil as possible while still can.

http://m.huffpost.com/us/entry/56d868f4e4b0000de4039231