Saudi Arabia: OPEC -is- Market
January 15th, 2008 at 8:28 am
January 15th, 2008 at 8:28 am
The AP reports that the oil minister of Saudi Arabia told reporters that OPEC will raise production “when the market justifies it.”
This is pretty arrogant. OPEC, because of its nature as a group of government agencies controlling oil exploration, cannot respond to the market quickly. Participants in the oil market must wait until the next OPEC meeting to see what it will do. It is an inefficiency that is begging to be exploited.
January 15th, 2008 at 11:29 am
What is often left out of this discussion is futures trading on the world oil market.
A lot (if not most) of our oil pricing issues are driven by market trading, not by OPEC production. While production capacity and government intervention have a significant influence on futures trading, we must understand the consequence of such governmental influence are not always predictable.
On the production side, it is not wise to reduce production to the point where it makes other countries desperate unless the producing nation is looking to start a war. So there is no real financial benefit for an oil production country to start such a war, unless the leader is a fanatical idiot. And even then, the global market prices are still primarily set and manipulated by futures trading in the global market place.
So, who is exploiting whom?
To be honest, the producing nations (OPEC) are being exploited on one end just as much as the consumer at the other end.
This is how it works in a free market economy. The winners are everyone invested in the oil market, which includes the retirement accounts of most American workers.