Big oil companies seem to be canceling investments left and right because of falling oil prices. Oil prices fell from their mid-summer high of $145 to below $45 this week, and some investors speculate that the looming recession will cause them to hit $30 before they climb back up. With prices that low, some oil projects -- not to mention many alternative projects -- are no longer profitable, so they get cut. So fa
r so good -- or bad, depending on your perspective.
But trouble is that most observers see oil prices rising well above even $145. The International Energy Agency speculates with a long-term price of $200 per barrel and warns of severe supply shortages. So what gives? Are oil companies really that myopic?
Frankly, I don't know the answer to that question. My best guess would be that credit constraints and the need to meet quarterly earnings in a time of falling prices force oil companies to cut down on investments. Not even Saudi Aramco is sitting on enough cash to finance big exploration ventures without asking banks for money, and they've been incredibly stingy of late.
Is that really the only story, though? What else is going on?
