So my tin foil hat conspiracy goes like this;

By May/June of this year, Reservoir pressure in Ghawar waned to the point Saudis had to cut production pretty hard by the end of 2008. GWB was stopping by routinely to beg for oil, and this Simmons guy was gaining followers by the day. They were in a predictament.

So how do they cut production in an environment where the trade is short bank stocks and long oil? The worse the financial crisis was, the more that investors leaned on the PO story. To cut production while this thinking was at hand was to send the world into chaos. They needed a price collapse.

Meanwhile, the Fed needed to print money/lower interest to help banks, but they couldn't do it until the commodity bull was dead. Somebody new had to enter the oil market and short NYMEX crude with a massive position. But who could tip over the oil speculative bubble without risking everything they had? Someone who actually had the oil, and lots of it, like 9 mbpd worth of it.

So a deal was made between Secratary Paulson and Saudi. The Saudis sold 6 months or better worth of oil on the NYMEX through some shadow investment trading firm, selling each rally, and spooking investors. Meanwhile, the gov't would launch CFTC investigations etc to do their part.

Once energy shares in the Dow etc went to tanking, investors got spooked and pulled money out of 401Ks, and set the dominoes further. Ultimately the price crashes to the point neither banks not investors have confidence in anything.

Throw in the housing problem and you have a powder keg.

The Saudis get to cut an amount unthinkable just 4 months earlier, they got a higher price for that oil via hedges, and they killed alternative energy, all in one fell swoop.

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I find it interseting that they cut more than promised at their Sept meeting, and yet the news really isn't running with that story.

It seems the financial news tries to rationalize why things happen, and the truth is often left out. The story is demand destruction, NOT falling supplies, and that is to continue until prices rise.