Read MoreUS oil ends below $79 after brief spike amid supply fears
I think the market is calling the Saudis' bluff.
First, it's not clear if we should believe anything they say. They have tried to jawbone the market up many times in the past, but talk is cheap. They can keep production at the current level, say they are cutting production or just talk about raising prices, and hope the market will panic and bid oil up.
But it's not working this time.
Why cut prices to the U.S. and raise them in the Far East?
Cutting prices to the U.S. is the only part that makes a little sense. They can see that U.S. production is replacing oil imports from Saudi Arabia and everyone else. Refiners in the U.S. have plenty of supply; they don't know what to with the crude they have.
The U.S. will need less imports, so Saudi Arabia needs to cut prices to the U.S.
In the Far East, it's a different ball game. They are a major supplier. It would seem they can dictate oil prices.
But it looks like they might have overplayed their hand.
For example, the Chinese economy is in a slowdown phase engineered by the government. That means less oil demand. They can raise the price of oil all they want, but it's not clear how many buyers there will be.
And how about their competition? Look at Russia. You think Putin is cutting production? No way.
This is a long way of saying that cartels like OPEC have much less influence than they used to have, and now the markets can see through them.
Traders are acting like there is a global glut and it is unlikely to end soon.
Look how closely the drop in Brent and West Texas has paralleled the drop in Oil & Gas and Oil Service stocks since the beginning of October:
The only group in the Energy sector that has done well since this turmoil began have been refiners; they are up on the quarter. They would be doing even better, except gas prices have also been dropping.
The refiners do have one advantage: many of them own pieces of the vast pipelines and storage facilities necessary to move all the oil and gas around; that has done exceptionally well. Many are being spun off into Master Limited Partnerships (MLPs). The least sexy part of the business is the hottest part of the business, because the high dividends are relatively immune. That doesn't mean they are immune from price drops, but high dividends cover over a lot of pain.