Walter Williams on Oil Speculation

Put yourself in the place of an OPEC member knowing there would be a greater supply of U.S. oil in five or 10 years, hence maybe driving oil prices lower to, say, $40 a barrel. What will you want to do now while oil is $130 a barrel?

Quote:

Put yourself in the place of an OPEC member knowing there would be a greater supply of U.S. oil in five or 10 years, hence maybe driving oil prices lower to, say, $40 a barrel. What will you want to do now while oil is $130 a barrel?

Make more money now. Ignore the pitiful pleas from the President of the United States or the British Prime Minister to increase production. Decrease production. Drive up the price even more. Change the denomination of oil to the Euro. Get more money, and keep more oil, so you'll be able to sell it in the future. Use current anti-American resentment in many countries and actively try to persuade them to join OPEC. Talk to Gabon to get them back on board. Persuade Oman, Sudan and Yemen to join. Try to lure Kazakhstan, Azerbaijan and Turkmenistan into the organization, to put even more pressure on countries that will never be able to produce enough oil for domestic consumption.

Quote:

Put yourself in the place of an OPEC member knowing there would be a greater supply of U.S. oil in five or 10 years, hence maybe driving oil prices lower to, say, $40 a barrel. What will you want to do now while oil is $130 a barrel?

Make more money now. Ignore the pitiful pleas from the President of the United States or the British Prime Minister to increase production. Decrease production. Drive up the price even more. Change the denomination of oil to the Euro. Get more money, and keep more oil, so you'll be able to sell it in the future. Use current anti-American resentment in many countries and actively try to persuade them to join OPEC. Talk to Gabon to get them back on board. Persuade Oman, Sudan and Yemen to join. Try to lure Kazakhstan, Azerbaijan and Turkmenistan into the organization, to put even more pressure on countries that will never be able to produce enough oil for domestic consumption.

old europe wrote:

Quote:

Put yourself in the place of an OPEC member knowing there would be a greater supply of U.S. oil in five or 10 years, hence maybe driving oil prices lower to, say, $40 a barrel. What will you want to do now while oil is $130 a barrel?

Make more money now. Ignore the pitiful pleas from the President of the United States or the British Prime Minister to increase production. Decrease production. Drive up the price even more. Change the denomination of oil to the Euro. Get more money, and keep more oil, so you'll be able to sell it in the future. Use current anti-American resentment in many countries and actively try to persuade them to join OPEC. Talk to Gabon to get them back on board. Persuade Oman, Sudan and Yemen to join. Try to lure Kazakhstan, Azerbaijan and Turkmenistan into the organization, to put even more pressure on countries that will never be able to produce enough oil for domestic consumption.

Boy, that'd be pretty stupid. ;p

OPEC has a distinct problem - it needs to be able to control the price, not merely on the minimum, but on the maximum as well. Why the maximum? Because the continuation of an oil-underpinned economy is contingent on nobody delivering alternative energy solutions; and, to put it bluntly, at a sufficiently high price point, it becomes viable to extract oil from non-traditional sources in the US and Canada, which would be a death knell for OPEC as an organization.

OPEC has lost pricing control of the market, though, due to speculation. At first, the pricing increases were actually reflective of worries about geopolitical instability and the inability of OPEC countries to keep production in pace with rising demand. Now, the market has the bit in its teeth, and all the money that was previously pushing up US stock prices or California real estate prices is now busily pushing up prices at the pump.

With the price of oil this high, a lot of alternative energy solutions that were "workable, but can't compete with cheap oil" are suddenly viable, at least enough to throw development money at; and indeed, the money is being thrown at them.