> It means that oil companies have (collectively) predicted a much higher future demand growth than realized.

That might be an over-extension of the markets-as-preditive-tool view. I am more inclined to see the current prices as a consequence of latencies in the oil markets that prevent it from showing true supply and demand accurately. When prices were high, too many new wells were drilled at once because it takes a long time for the new oil to hit the market and bring prices down. When the new oil hits the market and starts reducing the price, none of the producers can cut back on what they send to market because they have to pay off the loans that they used to drill their wells in the first place.

The supply side is structurally unable to respond to demand, regardless of what they predict future demand to be.

I think this is right. Reminds me of the beer game: https://en.wikipedia.org/wiki/Beer_distribution_game

Oh look, there's a version you can play online: http://forio.com/simulation/harvard-business-school-root-bee...

No it doesn't, it's political.

Are the Saudis hoping they can limit the benefit (to Iran) of the opening of Iran's markets enough to tip the scales the next time there's a decision to be made about either defying the West or keeping markets open, such that they become isolated again? All that I've read about their recent moves claims that they're doing it to counter Iran, but that doesn't seem like it'll work long-term unless they expect Iran to be out of the game again fairly soon. Otherwise they're just wasting money for a delaying tactic.

The Saudis are doing it not just to counter Iran - they also have to compete with South American, Canadian, American, and Russian oil. They've increased the volume of production to keep the prices artificially low in order to squeeze all of those players out of the market. It's also why Russia has a vested interest to act in Syria, propping up the Assad regime - to keep their oil under the control of an entity friendly to their interests.

Also one of their few friends in the middle-east who also happens to be a big customer for Russian military hardware. But yeah, the Saudi's are engaging in pretty classic cartel behaviour, in response to Iran and US shale: https://en.wikipedia.org/wiki/Predatory_pricing

It gets more bizarre though. Putting aside economics, the US, the Saudis and the Iranians all have a pretty aligned geo-political reason for pumping the oil hard: ISIS.

Politics and war make strange bedfellows.

I think the Saudis are gambling they can keep it together politically and financially longer than their competition can, leaving them with a de facto monopoly.

It's a very ballsy move, but it's also a very dangerous one, because the Saudi regime relies heavily on direct patronage - handouts - and if those stop happening there's a real danger of instability.

It's also very dangerous to poke Russia too hard, because Putin really isn't likely to say "Fine then, I'll just give up."

This could all end very badly for everyone.

Or maybe, as many people have argued, Saudi Arabia realized that OPEP (and the non-OPEP players) are simply not disciplined enough to bring their production down enough to move prices up.

So they've decided to fight for market-share this time. And they can, since their production prices are on the low side.

I was just thinking, if we really do stop using oil for transportation, that means at this point there's probably a fixed number of barrels that are going to get sold, period. That's going to become cash, and the rest of everyone's oil is going to stay in the ground. Well, there will always be a market, it'll just be fundamentally smaller potatoes.

But so if there's only so many barrels of oil going to be sold, then at this point it really is an all-out scrap for market share. Maybe Saudi Arabia is aiming to just to divest themselves of the majority of their reserves while volumes like that can still be moved at all, i.e., over the next 20-50 years.

If this is a 20 year game then it's time for bold moves.

Who's oil ? Syria's ?

Syria's production is close to Belarus's production and behind Cuba's. And even before its decline it was behind Ukraine's production.

It's not a big enough player for anything. Especially for a juggernaut like Russia.

Syria has Russia's deepwater port in the region. They won't give that up easily.

I think the increased supply is partly a matter of Iraq's recovery, the lifting of sanctions on Iran, and perhaps also the rapid increase of US production since 2011 (partly due to fracking?) These producers want revenue more than they want a high price.

Libya is also sort of coming back