Comment by cj
1 day ago
> Without a healty cartel, oil is doomed
Why/how?
Without a healthy cartel, wouldn't prices go down? Cheaper oil means less adoption of alternate energy sources.
1 day ago
> Without a healty cartel, oil is doomed
Why/how?
Without a healthy cartel, wouldn't prices go down? Cheaper oil means less adoption of alternate energy sources.
The goal of the cartel was to stabilize prices right in the sweet spot to keep the world addicted. Too low and players start losing money, too high and people switch away from oil, too much volatility, and people switch away from oil.
> Too low and players start losing money
Only the non-competitive ones. That's how competition works.
OPEC would be deemed an illegal anti-consumer price fixing scheme under the laws of any country with even the most basic of anti-trust laws, if not for the fact that its entirely composed of sovereign countries not subject to any law but their own.
If the price is too low and fields stop being exploited because they're unprofitable, you reduce the volume produced each day. That means there's scarcity with a low price, and you're back at trying to switch en energy source because you just can't get oil.
That moves prices upward, because people are willing to pay more, but increasing production is not like turning the faucet in your home. It takes time. This is the instability of oil production that OPEC tries to prevent, to keep the world hooked on readily available just cheap enough oil.
2 replies →
> The goal of the cartel was to stabilize prices right in the sweet spot to keep the world addicted.
If the price of oil remains low the gulf governments can't fund their social programs and risk instability. That may not be the only reason for OPEC but it's a major one.
When fracking really took off the writing was on the wall and I think many OPEC nations have since taken serious measures to shield themselves from price drops. This is probably why the UAE can now feasibly leave OPEC. I thought the fracking boom was the end of OPEC but they managed to hang on.
The prices would go down too much, and then infrastructure would rot as production slows down. Then, prices would skyrocket, and so on.
Oil production and distribution is basically infrastructure, like energy or internet. It can't really follow free market dynamics without eating itself.
A healthy cartel means consistent oil prices. Without it, oil may average cheaper over the long term (and almost certainly over the short term), but there will be a lot more variance.
Ok? If you can’t have price variance buy futures. Price variance doesn’t matter for consumers, just average price.
Price variance matters a lot for consumers, especially gas/oil.