Comments on: There Isn’t Enough Demand http://www.bloggernews.net/115771 High-quality English language analysis and editorial writing on the news. Wed, 25 Nov 2009 07:11:13 +0000 http://wordpress.org/?v=2.3.3 By: Paddy Briggs http://www.bloggernews.net/115771#comment-339859 Paddy Briggs Sat, 17 May 2008 06:59:09 +0000 http://www.bloggernews.net/115771#comment-339859 Follow the money: Who benefits from high oil prices? 1. Multinational oil companies and their hugely over-rewarded top management. 2. Producing countries whose production far exceeds their local demand (mainly in OPEC). Find me an OPEC producer that does not have ruling families living in grandiose palaces characterised by conspicuous consumption. The above laugh all the way to the bank. And there is clearly mutual advantage (if not an actual conspiracy) for the two beneficiaries to “work together” to keep prices high. Follow the money:

Who benefits from high oil prices?

1. Multinational oil companies and their hugely over-rewarded top management.

2. Producing countries whose production far exceeds their local demand (mainly in OPEC). Find me an OPEC producer that does not have ruling families living in grandiose palaces characterised by conspicuous consumption.

The above laugh all the way to the bank. And there is clearly mutual advantage (if not an actual conspiracy) for the two beneficiaries to “work together” to keep prices high.

]]> By: Rich http://www.bloggernews.net/115771#comment-339841 Rich Sat, 17 May 2008 06:27:47 +0000 http://www.bloggernews.net/115771#comment-339841 Then why is Bush asking for Saudis' to increase production? I think all this open market economics is a bunch of bunk. Then why is Bush asking for Saudis’ to increase production?

I think all this open market economics is a bunch of bunk.

]]> By: Paddy Briggs http://www.bloggernews.net/115771#comment-339802 Paddy Briggs Sat, 17 May 2008 05:43:09 +0000 http://www.bloggernews.net/115771#comment-339802 The price of oil is determined in principle in a classic open market. Seller makes an offer - buyer accepts offer. Price is set. Obviously there are variations in respect of quality but no more than a few dollars. The classical economic model is at work here. At the intersection of the supply and the demand curves we get the price. Demand is affected by the collective needs of the world’s economies - the West and (increasingly) the rapidly growing economies of India and China. Supply (on the margin) is very strongly determined by the OPEC producing cartel. They decide what their production will be over any period (obviously within the limits of what is technically possible). If they restrict production somewhat the price will rise. If they release more production the price will fall. So the Saudis and other OPEC members are not at present restricting supply because there is no demand (whatever they may say). They could ensure that the price of crude fell substantially tomorrow by cranking up supply - but they judge that it is not in their interests to do so. Non OPEC producers generally produce the maximum that they can and for the Multinational Oil companies like Exxon, BP and Shell it's bonanza time. They don't have to do much - just let the $$$$ roll in! I should add that much of the above is in a context of “perceptions” and “forecasts” (i.e. what speculators and traders perceive to be happening and expect to happen). There is rarely an actual shortage or surplus in the short term. The price changes in line with what people expect to happen. The price of oil is determined in principle in a classic open market. Seller makes an offer - buyer accepts offer. Price is set. Obviously there are variations in respect of quality but no more than a few dollars. The classical economic model is at work here. At the intersection of the supply and the demand curves we get the price. Demand is affected by the collective needs of the world’s economies - the West and (increasingly) the rapidly growing economies of India and China. Supply (on the margin) is very strongly determined by the OPEC producing cartel. They decide what their production will be over any period (obviously within the limits of what is technically possible). If they restrict production somewhat the price will rise. If they release more production the price will fall. So the Saudis and other OPEC members are not at present restricting supply because there is no demand (whatever they may say). They could ensure that the price of crude fell substantially tomorrow by cranking up supply - but they judge that it is not in their interests to do so.

Non OPEC producers generally produce the maximum that they can and for the Multinational Oil companies like Exxon, BP and Shell it’s bonanza time. They don’t have to do much - just let the $$$$ roll in!

I should add that much of the above is in a context of “perceptions” and “forecasts” (i.e. what speculators and traders perceive to be happening and expect to happen). There is rarely an actual shortage or surplus in the short term. The price changes in line with what people expect to happen.

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