Oil prices have plunged by a third since June. What happened?

Damned if I know. This is an extremely murky market. Information about supply is notoriously patchy. As for demand, people are writing dissertations about the mentality of mega-fund managers who plunge into securities like oil futures one day, only to bail en masse another.

But from from Wednesday’s New York Times article, there are two factors driving the fall in oil prices:

1) The Saudis have opened their taps.

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“We have worked very hard since June to bring prices to where they are now,” [Saudi oil minister] Ali Al-Naimi told reporters Tuesday morning. “We have been very successful.” Mr. Naimi was referring to a pledge Saudi Arabia made in June at a meeting of producers and consumers in Jeddah to keep pumping at full throttle to bring prices down. The kingdom is producing about 9.5 million barrels a day, 600,000 barrels a day more than its official OPEC quota.

(On Thursday, Naimi announced Saudi Arabia would maintain its higher-than-quota pumping in defiance of a recent OPEC decision to cut production.)

2) Demand in the developed countries is falling, partly because of slow or negative economic growth, partly because of consumer cutbacks in response to high prices.

What strikes me is this seems like the same old oil market: Prices are tied directly to economic growth, and the Saudis have the power to push down prices just by opening their taps. Not so long ago, peak-oil zealots were assuring us that the Saudis no longer had to capacity to push down prices. Well?

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We’ve been down this road before. In past times of heightened prices, when words like “conservation” and “renewable” started to get kicked around in developed countries, the Saudis merely flooded the market (cheered on, no doubt, by many of the same folks now knocking around the White House). The last time this happened, we got the SUV.

Falling oil prices complicate things across the political spectrum. If prices keep plunging, what does that do to the GOP’s “drill here, drill now” strategy?

More importantly, what does it do to the green agenda? Rhetoric about the “end of cheap oil” has driven much of the push behind everything from renewable energy sources to local food in recent years. What happens if oil settles in for a while at, say $50 per barrel?

Meanwhile, the OPEC nations themselves seem nervous about the prospect of a crash. Interestingly, Iran, Libya, and Venezuela — all of whom are more or less hostile to the U.S. — are pushing for production cuts. Good thing our dear friend Saudi Arabia is telling them to go to hell!

I think the message here is that the oil market is not our friend. We can’t count on ever-escalating oil prices to bail us out on climate change, or rebuild robust local economies. These critical tasks are going to require hard political organizing no matter what, and they may have to take place in a climate of cheap(ish) oil.

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