# Oil prices tanking, why isn't the economy soaring? **URL:** \ **Category:** Great Debates\ **Created:** [January 5, 2016, 3:43pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221 "2016-01-05T15:43:19Z")\ **Posts on this page:** 10\ **Page:** 6
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [January 21, 2016, 7:46am UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/101 "2016-01-21T07:46:10Z")
> [@Lord\_Feldon](#): > > Is this part so bad? One of the causes of the crisis was that too many people owned homes they couldn’t actually afford. They couldn’t afford them because the price they paid was artificially inflated. They should be better able to afford to own homes now save for those who lost all their money in the scam. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [January 21, 2016, 6:31pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/102 "2016-01-21T18:31:02Z")
> [@TriPolar](#): > > At this rate gas stations will be paying us to take away the gas. It’s interesting to note that the price for certain grades of oil is [approaching $0](http://www.bloomberg.com/news/articles/2016-01-18/the-north-dakota-crude-oil-that-s-worth-less-than-nothing). It’s worth being aware of this, because it impacts the economics and dynamic. The price that gets reported (generally Brent or NTI) are top grades of oil, top grade in that they require the least refining. A lot of oil requires much more refining, and gets sold for much cheaper. This has an impact when discussing the cost to produce versus price. I saw the other day, with “oil” trading at $29, that the average price commanded by Middle East oil producers was actually $25. Now that $4 difference might not be a big deal if it’s a difference between $102 and $106, but it’s a big difference between $29 & $25. If your cost to produce is $10, then it’s the difference between $19 net and $15 net, or over 20%. And a lot of countries/companies are producing oil that has a spread of much greater than $4, as above. ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [January 21, 2016, 6:41pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/103 "2016-01-21T18:41:25Z")
> [@Fotheringay-Phipps](#): > > It’s interesting to note that the price for certain grades of oil is [approaching $0](http://www.bloomberg.com/news/articles/2016-01-18/the-north-dakota-crude-oil-that-s-worth-less-than-nothing). I hate it when my jokes start looking like facts. Happens all to often these days with economic issues. Isn’t this part of the Saudi strategy though? ---
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [January 22, 2016, 7:14am UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/104 "2016-01-22T07:14:11Z")
> [@TriPolar](#): > > Isn’t this part of the Saudi strategy though? I think so. Other members of OPEC have cheated on the quotas repeatedly, kind of screwing the Saudis with their disloyalty, plus the global production landscape has changed. The Saudis have huge, low-cost reserves. This time they are going to hang on to their market share and let the market shake itself out. Whole countries could be ruined by this (Venezuela, maybe to some extent Brazil), but the Saudis will just point to these members’ record of cheating on agreed-to quotas. Plus, Iran. Maybe there is an element of Wahabi justice in all this. Steal from me, I chop off your hand. Cheat on the OPEC quota, someday I chop off your dick! ---
**Author:** ![CarnalK](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/carnalk/32/486_2.png) [@CarnalK](https://boards.straightdope.com/u/CarnalK)\ **Post date:** [January 22, 2016, 4:11pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/105 "2016-01-22T16:11:15Z")
I doubt it’s part of any Saudi strategy to see oil go so low. They’ve said they were willing to cut production if Iran scaled back their re-entry into the market and if other non-OPEC big producers promised to scale back. They are better situated than almost anyone to ride out the glut so why should they lose market share so other countries can balance their budgets? ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [January 22, 2016, 4:17pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/106 "2016-01-22T16:17:20Z")
> [@CarnalK](#): > > I doubt it’s part of any Saudi strategy to see oil go so low. They’ve said they were willing to cut production if Iran scaled back their re-entry into the market and if other non-OPEC big producers promised to scale back. They are better situated than almost anyone to ride out the glut so why should they lose market share so other countries can balance their budgets? I don’t know. It seems to serve them to put the low grade crude business in dire straits. Not making as much money for doing nothing for a while doesn’t sound like a great sacrifice to put them back in the cat bird’s seat. ---
**Author:** ![CarnalK](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/carnalk/32/486_2.png) [@CarnalK](https://boards.straightdope.com/u/CarnalK)\ **Post date:** [January 22, 2016, 4:57pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/107 "2016-01-22T16:57:07Z")
But three things: 1. it doesn’t have to be this low to knock out a lot of competitors, I’m sure they’d be much happier at a higher prices so they don’t have to dig so deep into their buffer. 2. Despite shale and tar sands companies wailing “they’re out to kill us”, those will come right back on line once the oil price justifies it - even if a new guy is doing the drilling. 3. Not being sad about something isn’t the same as it being part of a strategic goal. From what I’ve read, the Saudi’s main mid and long term goals are to maintain market share and keep oil “competitive” with alternative energies. I’ve seen them say that $100/barrel would be fine. Btw, LonghornDave and Greasy Jack seem to be informed posters on the oil biz. I recommend looking up their inputs on this subject recently. Longhorn Dave especially seems to know the numbers. ---
**Author:** ![CarnalK](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/carnalk/32/486_2.png) [@CarnalK](https://boards.straightdope.com/u/CarnalK)\ **Post date:** [January 22, 2016, 5:05pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/108 "2016-01-22T17:05:11Z")
I got to say one of my favourite quotes I’ve come across diving into this subject a little is a former Saudi oil minister in the 80’s said “The stone age didn’t end because we ran out of stones”. Ha! ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [January 22, 2016, 5:06pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/109 "2016-01-22T17:06:17Z")
> [@CarnalK](#): > > But three things: > > 1. it doesn’t have to be this low to knock out a lot of competitors, I’m sure they’d be much happier at a higher prices so they don’t have to dig so deep into their buffer. I’m not saying their strategy is working as well as they want it to. > [@](#): > > 1. Despite shale and tar sands companies wailing “they’re out to kill us”, those will come right back on line once the oil price justifies it - even if a new guy is doing the drilling. Depends on the extraction and refining costs, and the supply. The light sweet crude will be preferred until supplies run low and the price is artificially high. The last part I don’t know how to address. My point was that they wanted to hurt the competition. ---
**Author:** ![CarnalK](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/carnalk/32/486_2.png) [@CarnalK](https://boards.straightdope.com/u/CarnalK)\ **Post date:** [January 22, 2016, 5:21pm UTC](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221/110 "2016-01-22T17:21:29Z")
> [@TriPolar](#): > > I’m not saying their strategy is working as well as they want it to. Yeah, so maybe they aren’t so powerful at controlling the price as some think - or maybe maintaining market share is way more important. > [@](#): > > Depends on the extraction and refining costs, and the supply. The light sweet crude will be preferred until supplies run low and the price is artificially high. I am not a fan of calling prices “artificial” but regardless when those “artificially high” prices come around, those projects will come back. They are not the massive projects of traditional oil extraction, they can get up and running quicker. They have surprised the industry with how they’ve got their costs down. If you look up their break even point, some are good at $40/barrel. That’s not very high at all. [Previous page](https://boards.straightdope.com/t/oil-prices-tanking-why-isnt-the-economy-soaring/742221.md?page=5)