Sunday October 5, 2008

I've Been Thinking:

Iran is starting to flex some muscle.
Iran has expressed disappointment that the price of oil has dropped below $95 per barrel.
Iran has announced that the dropping of the price of oil is neither beneficial nor helpful to the Muslim countries.

At the same time Iran is clearly demonstrating how it does not understand world economies and why their own economy is in such dreadful condition. They fail to understand that price of oil is not only determined by the producer of the product.

Prices are also determined by demand.
The demand for oil has dropped since the price when high.
Now there is a glut of oil on the market.

If Iran wants to keep the price high they have to decrease world production.
But if they succeed in decreasing production and keeping the price elevated they might make less money than dropping the price.

People will buy more oil when the price of oil comes down.

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