As we noted in September (when the price had just dipped below $100 a barrel), after an initial price shock when ISIS seized northern Iraq, the world oil price has since slumped. It now stands at around $60 a barrel. Recall that way back in late 2001, when the US was invading Afghanistan, it stood at a lowly $11. At that time, we predicted an imminent price shock to jump-start the planned industry expansion—both in the Caspian Basin and here at home, overcoming environmental concerns. Boy, were we right. The price of a barrel first broke the $100 mark in 2008, and has frequently crossed it in the years since then, although it never quite hit the much-feared $200-a-barrel. But now the petro-oligarchs are talking like $100 may be the new $200. Saudi Arabia's oil minister Ali al-Naimi last month answered "we may not" when asked if markets would ever lift prices to $100 again. (CNN, Dec. 23) How much of this are we to believe, and what is really behind the slump?

Oilprice.com quotes the unimaginative explanation of "energy expert" Arthur Berman:

The current situation with oil price is really very simple. Demand is down because of a high price for too long. Supply is up because of US shale oil and the return of Libya’s production. Decreased demand and increased supply equals low price.

As far as Saudi Arabia and its motives [in keeping production high and prices low], that is very simple also. The Saudis are good at money and arithmetic. Faced with the painful choice of losing money maintaining current production at $60/barrel or taking 2 million barrels per day off the market and losing much more money—it's an easy choice: take the path that is less painful. If there are secondary reasons like hurting US tight oil producers or hurting Iran and Russia, that’s great, but it's really just about the money.

Is it really that "simple"? Um... No. Libya's "return to production" is largely fictional. Demand is down not because of formerly high prices (what sense does that make?) but because China's consumption has slowed due to the global crisis of capitalism belatedly hitting that mega-consumer. The too-obvious explanation of Saudi motives fails to ask why the Saudis have at other times cut production and driven up prices (e.g. exactly two years ago, as the Wall Street Journal noted at the time). As we have always argued, the laws of supply and demand are secondary to geopolitics in determining the oil price—as price spikes have always followed crises in the Middle East. The one we were experiencing at the peak of the Iraq insurgency eight years ago being a prime example.

This raises the question of why the spike after the ISIS irruption in summer 2014 was so modest and short-lived. The conventional wisdom is that the market has been flooded with North American shale oil. (The US overtook Saudi Arabia to become the world's top oil producer last year, according to the Institute for Energy Research.) This conventional wisdom is shared by Marxist economist Michael Roberts on his blog, cheerfully entitled The Next Recession. ("Next"? Did the "Great Recession" ever really end?) He predicts the oil slump will set off deflation and spark a general economic slump—already hitting Russia. "[T]he crisis brewing for Russian businesses...could be another factor leading to a new global slump, this time based in the non-financial productive sector of capitalism."

A weakened Russia certainly has its geopolitical uses to the West. Yes, there is also some "collateral damage." Shell Oil has decided not the develop its Yuzivska gas field in southern Ukraine—citing political instability, although commentators all note the depressed price. (Red Pill Times, Dec. 16) BP is set to lose hundreds of millions from its 20% stake in Russia's Rosneft as a result of the price plunge and related ruble collapse. (FT, Jan. 4) But this may be an acceptable price for the geopolitical aims. Reuters reported happily Dec. 19: "Syrian businessmen and trade officials say they are worried the economic lifeline provided by Iran is under strain from plunging oil prices, despite public messages of support from Syria's strongest regional ally." This reminds us of the 1980s Iran-Iraq war, when the Saudis and Gulf states flooded the market to keep prices depressed and weaken Iran.

In more good news for Washington, depressed oil prices have reduced Venezuela to seeking foreign aid. President Nicolas Maduro has just embarked on a tour —first stop China, to seek economic assistance; then OPEC leaders to plead for a price spike. (BBC News, Jan. 4)

Not that the global Imperium cares much, but the current glut also hurts producers such as Brazil, likewise experiencing currency devaluation as a result of falling oil prices. (Reuters, Dec. 16) Brazil's' industry is also also hit by a corruption scandal, with several top officials at parastatal Petrobras arrested last year in a money-laundering crackdown dubbed "Operation Car Wash." (Bidness Etc, Nov. 14; Bloomberg, April 16)

The glut also serves the interests of a further consolidation of the global industry. The New York Times notes that slump is being exploited by industry majors to gobble up smaller companies more vulnerable to financial stress. 2014 saw $383 billion in mergers and acquisitions in the oil and gas sector, with beneficiary Repsol of Spain having just placed an $8.3 billion bid  for the Canada's Talisman Energy.

Then there is the war at home, so to speak, with the fate of lands and communities slated to be sacrificed to fracking and shale extraction in the balance. While he officially cited environmental concerns as outweighing economic benefits, the slump certainly played a role in Gov. Andrew Cuomo's decision to ban fracking in New York state. Writes Sarah Fergusen in an analysis of "Why Governor Cuomo nixed fracking in NY State" for Lower Manhattan's The Villager:

And then there is the plunging price of oil, which has sent the nation's shale market reeling. Given falling gas and oil prices, it's unlikely banks would finance much drilling in New York right now anyway—especially when there’s plenty of less-regulated shale plays in Pennsylvania and beyond. (Indeed, some proponents of drilling say in some ways it makes sense for Cuomo to leave the gas "banked" in the ground, until prices go up again.)

Ironically, on the heels of this victory, dozens of property owners in New York's Southern Tier received legal condemnation notices from a pipeline company. Williams Companies filed condemnation notices against 73 land owners in Delaware, Schoharie and Chenango counties for construction of the Constitution pipeline that will carry natural gas from Pennsylvania, according to Bob Nied of the local Center for Sustainable Rural Communities. The notices come immediately after the Federal Energy Regulatory Commission granted conditional approval for the pipeline. But the line still needs water permits from the NY Department of Environmental Conservation. Nied accused Williams of acting like the pipeline a "done deal." (Capital New York, Dec. 24)

The mere fact of a simultaneous "glut" and "boom" (noted in the Oct. 17 NY Times headline "Despite Slumping Prices, No End in Sight for US Oil Production Boom") should clue us in that something other than the impersonal mechanism of supply-and-demand is at work here. The degree to which it is a unified strategy is debatable, but clearly we are being played.

Anyway, all the talk about how prices are now permanently depressed and will never again rise above $100 should be taken with several mines worth of salt. A decade ago, when the spike hit, we were told that inflated prices were "permanent," and experts were predicting "the end of cheap oil." Don't you worry, once the price slump has outlived its usefulness to the industry majors and Western governments, and/or the danger of economic collapse looms too close in the brinkmanship game, prices will be going up again. Domestic production will be cut, and the Saudis, no longer afraid of losing their market share, will follow suit. Then the "peak oil" crowd, who are very quiet now, will come out of the woodwork once again to claim the rising price as vinidcation of their erroneous theory. And there will be renewed calls to (for instance) open New York state to fracking.

It is true that the US now has more leverage in determining the global price than in the past, but the basic dynamic is unchanged. We've been through this before.