Screen Shot 2015-01-15 at 2.12.39 PMMany of us fill up our 4000 pound earth-bound steel rockets at the pump each week, watching the numbers tick by like a rolling slot machine – illusive and liquidic.  Liters, gallons, miles, kilometers, fuel efficiency, fuel costs, fracking, barrels, crude oil, dry oil…the wash of information coming at you is like the innumerable waves of radiation emanating our smartphones, iPads and laptops.  It’s enough to befog any real acumen – what the hell is actually going on?  In truth, we have little control over what goes into our vehicles and what comes out, (primarily the stack of dollar bills emptying our money clips and making the shine on our plastic a little less shiny).  Sure we can choose to buy smaller vehicles, more environmentally-friendly electric, battery or flex fuel alternatives, but at the end of the day, the majority of drivers worldwide, (even those self-professed “petrol heads,”) are vulnerable to those political magnets creating currents of economic attraction and repulsion. So what’s the truth behind the oscillating oil prices?  Where does our oil come from and who decides how much it will cost us every time we reach for the nozzle and begin fueling? Given the dramatic decrease in gas prices over the past several months, its probable, and not without reason, that one might be inclined to utter that cringe-worthy, hackneyed word – conspiracy.  After all, something about the whole gas and oil industry wreaks grotesquely of ulterior motive, (we all remember those weapons of mass destruction?).  Covert always lends itself well to paranoia and tin foil hats.  There’s a reason something needs covering up, isn’t there?  So while most of us can appreciate on some level that not everything we read about or hear about in the news is completely the whole truth and nothing but the truth, what does that leave us with?

The petrol narrative is rooted in political and economic maneuvering coupled with market speculation based on market trends, market value and consumerism.  And if that doesn’t mean a whole lot to you just think: it’s all about YOU.  You are the euphemism.  You are the cause and the effect.  As a consumer, you’re not just “in the mix” but at the very centre of it, holding up the house of cards comprised of jacks, queens and aces bedecked in price movements, currencies, investors, and a whole other whack-load of sticky icky implications you probably didn’t want to get your hands dirty with in the first place.  The domino effect of the price of oil can be drastic and far-reaching, resulting in either significant revenue shortfalls or gains for many energy exporting and importing nations.  So before we dive into conjecture and theory, let’s review the facts.  For nearly five years, world oil prices have remained relatively stable, at around $110 a barrel.  However since June, 2014, oil prices have fallen exponentially, dropping a staggering 40%, resulting in US crude falling below $50 a barrel.  While many political pundits and economists will tell you that market prices rely on supply and demand and speculation, this might be the time when you eyebrows meet each other in a confused stupor.  Don’t worry.  You’re not feebleminded.  Oil prices that drop at the speed of sound, (the sound of SUV drivers uniting and rejoicing that is) can’t just be the result of current supply and demand.  Tesla is good, but not that good.

Screen Shot 2015-01-15 at 2.12.58 PMOPEC, (the Organization of Petroleum Exporting Countries) which accounts for roughly 40% of global crude oil production, was recently quoted by its secretary general, Abdalla Salem el-Badri saying  that declines are largely due to speculation by traders in the market, rather than an oversupply.  However many Westerners are more inclined to believe that an increase in global oil, primarily competition from the United States shale oil production, has forced OPEC’s hand.  That is, to keep oil prices down in a, “starve them out” siege and conquer stratagem.  This tactic would also extend to one of its chief member’s regional rivals, Iran.  While some estimates posit that Iran needs oil at $136 a barrel to finance its spending plans, others contend Saudi Arabia only requires the price of oil to be at $99.20 or less a barrel to break even.  Moreover, with a multibillion-dollar reserve on the back of budget surpluses, the Saudis and other OPEC nations can easily hold out for several years if the price of oil drops well below these figures.  Last month Saudi Arabia and its OPEC allies announced it will not decrease its rate of oil production, despite steadily decreasing global oil prices. Following the announcement, the U.S. West Texas Intermediate crude oil benchmark price fell below $66 per barrel – right in the sweet spot that OPEC hopes will check U.S. oil production.  However it’s not just Iran or the US that could feel the brunt of this price spiral.  Russian President, Vladimir Putin was recently quoted saying, “at some moments of crisis it starts to feel like it is the politics that prevails in the pricing of energy resources.”  While neither the United States nor Russia are a part of OPEC, it is plausible that OPEC is engaging in a two front attack, targeting its biggest competitors in the hopes that it will force higher-cost shale producers out of the market.  While many non-OPEC countries, Canada included, are guilty of stealing some of the Saudi’s market share, it may very well be argued that OPEC is simply trying to stay relevant in a rather volatile global market with increasing oil production and supplies.
Another conspiracy theory posits revenge politics: the Saudis and Americans joining forces to deliberately target and take down Vladimir Putin for his support of Syrian President, Bashar al-Assad, Russia’s annexation of Crimea and it’s unilateral involvement in Eastern Ukraine, (the 1973 oil crisis comes to mind here).  For every dollar fall in the price of oil, it is estimated Russia loses roughly $2 billion in revenue, and the World Bank has cautioned that if oil prices do not recover in 2015, Russia’s economy will shrink by at least 0.7%.  Despite this, Russia, like OPEC, has also confirmed that it will not cut oil production in a bid to retain its niche market. With dramatic spikes in interest rates, a troubled rouble, and global economic sanctions, Russia could be in serious trouble, which means serious trouble for Mr. Putin.

Screen Shot 2015-01-15 at 2.12.19 PMSo what does this all translate into?  A game of chicken or chess for these political leaders at the expense of their government’s economies and oil companies?  Perhaps.  Market speculation based on an estimate of over-supply or a drop in consumer demand?  Perhaps.  Revenge politics?  Maybe.  The truth?  Found betwixt propaganda, self-interest, tolerance and conspiracy.  Increased efficiency, smaller, more fuel-efficient and economic cars and a lesser demand on the global market.  Competition from the United States, Russia and other non-OPEC nations.  The Saudis and their Gulf allies maintaining their market share and relevancy.  A bid to gain political global primacy and hegemony.  Although the future economic effects of the plummeting oil prices on particular oil-reliant countries remain unclear, what is certain is that the consumer, (you) – the one driving the market, the supply and demand and paying or not paying for the oil in the first place, will have more money to spend on other sectors of the economy with higher confidence.  But this doesn’t mean now that we all jump on the Cadillac Escalade bandwagon and go petrol-happy.  Instead, we should take time to understand what’s behind our supply and demand, make smarter consumer choices, educated ourselves on what exactly drives us to buy and not buy, and where the actual truth lies- within the mainstream media and the backdoor conspiracy theories, in this case, the truth is rooted somewhere in them all.