One of the big surprises of recent weeks has been oil prices. With all the turmoil throughout the middle east I would have expected oil prices to be soaring. Instead they are doing the opposite. Certainly throughout my life whenever there has been violence between Israel and its neighbours oil prices have soared. But apart from that consider other flash points which should have increased oil prices.
- There is barely any oil coming out of Libya as it slides towards civil war.
- Syria is in chaos and it has some oil, many of the oil fields are under the control of the rebels who sell it the Assad regime.
- ISIS have captured a refinery and major oil fields from the Iraqi government.
The reason for this fall in oil prices is simple the Saudis have opened the taps. The question is how much longer the Saudis continue to be the swing producers of last resort? There are indications from Wikileaks that this situation may not be able to continue much longer with very high oil prices the result. Remember for every extra barrel they pump now that is one less barrel they can pump in the future. It is also worth remembering that the IEA is relying on Iraq boosting production to meet future global demand, something that seems very unlikely to happen.