26 February 2016

Saudis to Alberta—Tough Shit!

Saudi oil minister Ali al-Naimi didn't say quite what I've suggested in my headline, but only the words differed, not the sentiment. The Saudis, as we all know, have been opening up the oil taps lately, driving their production up and driving the price down. The low price is hurting a lot of people, including us. The minister has no sympathy. What he actually told a crowd of U.S. oil executives in Texas on Tuesday was, "Inefficient, uneconomic producers will have to get out, that is tough to say, but that's fact." That means us and our bitumen.

He did say OPEC had met with non-OPEC producers, but it was a short meeting. According to the minister, "We asked 'what are you going to do?' They said nothing. We said the meeting is over."

What al-Naimi was illustrating was the myth about oil and the free market. Alberta is a relatively conservative place, despite its NDP government, so belief in the free market is strong. And nowhere is it stronger than in the oil industry.

But the fact is that the free market has more often than not been no more than a minor, even trivial, influence on the price of oil. When OPEC first began to flex its muscles in the 1970s, it became the main determinant of oil price, merely by turning the taps. Its power has declined but it obviously still has considerable clout. It was OPEC, not a free market, that first drove oil from three dollars a barrel to thirty practically overnight. It was that bane of neoliberals—government interference in the marketplace.

The Saudis made us rich and now they are making us poor. Such are the whims of sheikhs, not of a free market.

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