The ability of oil exporters to trigger a short-term collapse in price does not automatically translate into an ability to control the financial conflagration such a crash ignites.
My BS detector went off when two stories with similar headlines touting $20/barrel oil were published on the same day. Color me skeptical, but it's almost as if mere $40/barrel oil is no longer enough to get the blood flowing, so both stories blared the more extreme $20/barrel price point.
Ready for $20 Oil?
The reason oil could drop as low as $20 per barrel
Neither story depicted $20/barrel oil as a brief spike–rather, each presented a future of sub-$50/barrel oil that could last for years or even a decade or longer, matching the period of cheap oil that ran from the mid-1980s to the late 1990s.
I have no problem with the idea that geopolitics is driving supply excesses, the goal being to crash the oil revenues of enemies–that's part of my Oil Head-Fake scenario: The Oil-Drenched Black Swan, Part 4: The Head-Fake Disruption Ahead (December 4, 2014).
The Financialized-Oil Dominoes Are Toppling (December 12, 2014)
The idea that global demand is stagnating is also common sense, given that the global economy is stagnating.
What seems less well-supported is the notion that any single oil exporter can single-handedly pump enough crude to keep prices at $20 or even $30/barrel for years or even a decade. Remarkably, few analysts seem to question this; it's as if the extended period of low oil prices in the 1985-1999 time frame has generated an unquestioned faith in the Saudis' ability to push prices down at will for years on end.
The current era is significantly different from 1985-1999. Let's list a few of the critical differences.
1. Saudi oil exports make up less than 10% of global oil consumption. Saudi Arabia exported about 7.7 million barrels a day (MBD) in 2013, while total global production was 92.7 MBD and global consumption was 92.3 MBD. (Source: U.S. Energy Information Administration, EIA) Global Petroleum and Other Liquids
