NationStates Jolt Archive

http://edition.cnn.com/2004/BUSINESS/12/10/opec.kuwait/
Oh, how I love it. OPEC is cutting away merrily, telling the world that it can't have as much oil as previously. However, I think they are shooting themselves in the foot. First, prices will probably rebound as demand will not get weaker. In fact, it might get stronger considering the low cost of oil. Secondly, this is sending a clear signal to Russia, Azerbaijan, Mexico, Canada, and all the other oil producers out there: to open the spigots wider, and take advantage of the higher prices. OPEC will, in turn, see less and less money this quarter, with the possible exception of Iraq, which is exempt from OPEC quotas. In short, this is a fun time for oil producers, or so I feel.

Let em cut it. Let em price themselves right out of the market. Eventually, people will wise up and develop alternative energy.

Let em cut it. Let em price themselves right out of the market. Eventually, people will wise up and develop alternative energy.
Oh, they will eventually. The world is actually making great strides in that direction. But until we get there, I'll make fun of my favorite little cartel. Besides, they all should know that Russia can cream them at any moment, and maybe even the US with its production, if we were feeling really ambitious. You know, actually, US production was greater than Saudi Arabia's or Russia's until about five years ago.

You've got at least one thing right. Once Russia gets itself in gear, it will crush OPEC so brutally that they won't know what hit them.

You've got at least one thing right. Once Russia gets itself in gear, it will crush OPEC so brutally that they won't know what hit them.
To be honest, though, I have my doubts about its long-term ability as a producer. If guys like Putin keep getting elected into office, we'll see the energy industry renationalized. That'd be horrible, as a.) the government can't run any business without strict regulations and grotesque losses, and b.) exploiting new finds in Siberia would be very hard to do. It was, after all, private companies that saved the Russian oil industry.
Still, I am very excited about the prospects of Azerbaijan. They are gonna complete a pipeline to Turkey next year, and will pump an additional 1.5 million barrels. And they are far from OPEC control.

This is good. They need to cut shipments to the US in half or none at all. Also, the US should bring the price up to $6/gallon like every other country...except Canada. It's $3 a gallon I think there.

Fair grasp of the situation, with the exception of the reasoning behind the quota reduction - the Saudis can hardly tell the global market that their Ghawar field has a rapidly rising water cut, and some of the other producers have serious problems maintaining their production capacity too. They're going to keep making noises about quota restrictions and maintaining a new high price target range - truth is, their capacity is maxed out, and can only fall.

This is good. They need to cut shipments to the US in half or none at all. Also, the US should bring the price up to $6/gallon like every other country...except Canada. It's $3 a gallon I think there.
The only reason why it is around $2 here is because there aren't stringent taxes. But in the long run, taxing gas hurts the environmental and alternative energy movements more than it helps it, because it doesn't allow free market mechanisms to work. Instead, it hurts the economy, and creates less of an investment pool for businesses, such as those developing alternative energy. It's also just as dangerous to subsidize gasoline, as Thailand and Malaysia do.

OPEC won't lose money until the US actually realizes it needs to go to alternative sources of energy.

The US is the largest consumer of oil and we buy most of it from OPEC, OPEC does at it pleases and the US follows because demand does not drop. In fact, the US is allowing mpg ratings to go down, hence you get cars like the H2 and the *new* truck from GM (i think) Its basically a cement truck outfitted for luxary. 6 miles to the gallon on that thing. This is also not to mention the demands of our military which just sucks up fuel, especially now that they are deployed in active duty tours.

What we really need Bush to do is to screw OPEC over buy actually developing and marketing affordable sources of alternative energy. Unfortunatly for the rest of us, Bush has too many connections with the oil industry's power lobbying group, so thats not likely to happen.

Gas is $2.19 USD where I live.

OPEC won't lose money until the US actually realizes it needs to go to alternative sources of energy.

The US is the largest consumer of oil and we buy most of it from OPEC, OPEC does at it pleases and the US follows because demand does not drop. In fact, the US is allowing mpg ratings to go down, hence you get cars like the H2 and the *new* truck from GM (i think) Its basically a cement truck outfitted for luxary. 6 miles to the gallon on that thing. This is also not to mention the demands of our military which just sucks up fuel, especially now that they are deployed in active duty tours.

What we really need Bush to do is to screw OPEC over buy actually developing and marketing affordable sources of alternative energy. Unfortunatly for the rest of us, Bush has too many connections with the oil industry's power lobbying group, so thats not likely to happen.

That's why it's best to let the free market to handle this. Anything more than the gentlest of pushing by a government creates regulation and red tape, so I believe that a solution, perhaps multiple ones, will come as the price of oil gradually rises. If it collapses, the research does not back track. If it rises, so does the investment into these companies. There are at least about two hundred companies across the world working on some form of alternative energy, and are having a grand old time sucking in all the loose capital. What they don't know is that this is leading to their own destruction, for eventually, this new sector will enter the rapid merger phase. ;)

Fair grasp of the situation, with the exception of the reasoning behind the quota reduction - the Saudis can hardly tell the global market that their Ghawar field has a rapidly rising water cut, and some of the other producers have serious problems maintaining their production capacity too. They're going to keep making noises about quota restrictions and maintaining a new high price target range - truth is, their capacity is maxed out, and can only fall.
Your pessimism is always refreshing, isn't it?

That's why it's best to let the free market to handle this. Anything more than the gentlest of pushing by a government creates regulation and red tape, so I believe that a solution, perhaps multiple ones, will come as the price of oil gradually rises. If it collapses, the research does not back track. If it rises, so does the investment into these companies. There are at least about two hundred companies across the world working on some form of alternative energy, and are having a grand old time sucking in all the loose capital. What they don't know is that this is leading to their own destruction, for eventually, this new sector will enter the rapid merger phase. ;)

The free market takes too long to correct itself and the only time its actually anywhere near effective is when you're in the classical range of aggregate supply, which implies full employement, another thing the US doesn't have.

Besides that, the companies know what is going on. They're competeing, the first one with a viable new source has the chance at a temporary monopoly in the market.

The free market takes too long to correct itself and the only time its actually anywhere near effective is when you're in the classical range of aggregate supply, which implies full employement, another thing the US doesn't have.

Besides that, the companies know what is going on. They're competeing, the first one with a viable new source has the chance at a temporary monopoly in the market.
And that is all that is needed to happen. All the major oil companies need to do is to have some form of an alternative energy program, have a PR campaign to continue supporting it, and they're set. That's self correction, and it is happening because of the price of oil.

I personally think, however, that all of the majors are fighting a battle that no one company can emerge as victorious. There probably is no magic bullet here, but likely a series of possible alternatives. Like you say, any monopoly will be temporary. So temporary, in fact, that an anti-trust suit won't make it to trial in time.

And that is all that is needed to happen. All the major oil companies need to do is to have some form of an alternative energy program, have a PR campaign to continue supporting it, and they're set. That's self correction, and it is happening because of the price of oil.

Problem there: oil companies make a killing off Opec's higher prices. They won't switch because they are making money. Until the oil either becomes irrelevant, outdated, or becomes prohibitivly expensive, the oil companies won't change.

Problem there: oil companies make a killing off Opec's higher prices. They won't switch because they are making money. Until the oil either becomes irrelevant, outdated, or becomes prohibitivly expensive, the oil companies won't change.
I thought you said they were. But even if they didn't feel like changing their habits, remember, a lot of rich, powerful people are really hurt by high oil prices. They'll invest their money into whomever will use it for alternative energy research. The free market is a conflict of interest, and that arrangement has worked successfully since it was perfected in the late 19th century. Since then, nothing has gone unplanned.

I thought you said they were. But even if they didn't feel like changing their habits, remember, a lot of rich, powerful people are really hurt by high oil prices. They'll invest their money into whomever will use it for alternative energy research. The free market is a conflict of interest, and that arrangement has worked successfully since it was perfected in the late 19th century. Since then, nothing has gone unplanned.

If you're talking US economy, its not free-market, its mixed market.

Second, the rich are the last to change their habitsb ecause they can afford to keep their styles of life for longer. In the late 1920's into the mid '30s the rich all had cars even though they were terribly expensive to maintain.

If you're talking US economy, its not free-market, its mixed market.

Second, the rich are the last to change their habitsb ecause they can afford to keep their styles of life for longer. In the late 1920's into the mid '30s the rich all had cars even though they were terribly expensive to maintain.
Indeed, the rich were in control of the markets then, and have a lot of power in it now. But they don't have as much, especially with the rise of Suburbia, and such companies as Bank of America. The age of the mass market has arrived. Same underlying principles, just different actors in this game.
And is the US economy mixed? Only a little. It's a little more mixed than I'd like to see, but the US has one of the purest market systems on the planet. Most countries have about 15% of the economy in a command system, and the rest in the markets. In the US, it's less than 10%. I mean, the government doesn't own a flagship airliner, an automaker, or a telecom business (except some small stakes), unlike, say, France.

Indeed, the rich were in control of the markets then, and have a lot of power in it now. But they don't have as much, especially with the rise of Suburbia, and such companies as Bank of America. The age of the mass market has arrived. Same underlying principles, just different actors in this game.
And is the US economy mixed? Only a little. It's a little more mixed than I'd like to see, but the US has one of the purest market systems on the planet. Most countries have about 15% of the economy in a command system, and the rest in the markets. In the US, it's less than 10%. I mean, the government doesn't own a flagship airliner, an automaker, or a telecom business (except some small stakes), unlike, say, France.

That's mostly due to the fact that the free-market system showed itself to be unreliable and ill-equipped for the US economy just before the Great Depression.

That's mostly due to the fact that the free-market system showed itself to be unreliable and ill-equipped for the US economy just before the Great Depression.
The Great Depression was probably the greatest of all corrections, and the economy would probably come back booming had it not been for the government. Herbert Hoover limited free trade to "protect" US industries, and to any economist, protectionism is a big no-no. FDR, while having good intentions, basically remade the economy in his own image with the New Deal. Some aspects, of course, where great, but most we could've done without. Anyhow, before WWII, 1934 was the only year of significant growth under FDR, and that evaporated by the following year.
Really, though, the Great Depression was setting itself up for correction: prices hit rock-bottom, the excess production of the 1920s was snipped away, and it mobilized the worker to have a bigger say in labor. This is critical to the free market, as part of the reason for the Great Depression was too much production, and very little money by most people to buy that many goods. If anything, a lack of communication was the downfall of the free market.

The problem was that the free market during that time did nothing to try and create jobs for the rest of society. People were being layed off from jobs left and right. As a result, they ran out of money. That basically stopped the purchasing power of the driving force of the economy. Without the driving force behind it, the companies would not be able to make profits, which would prevent them from hiring people, which would prevent the economy from recovery. FDRs federal work programs were really the only thing that actually kept people making money and pushing the economy forward.

Heh Anthrus, with all the "Oil will last forever", "Oil is constantly renewed" and "All we have to do is move over to burning hemp" cornucopian bullshit out there, people such as myself do perform a useful role. It is left to the pessimists to deliver the reality check, otherwise the "additional investment will always create oil" crowd actually gets credibility.

Heh Anthrus, with all the "Oil will last forever", "Oil is constantly renewed" and "All we have to do is move over to burning hemp" cornucopian bullshit out there, people such as myself do perform a useful role. It is left to the pessimists to deliver the reality check, otherwise the "additional investment will always create oil" crowd actually gets credibility.
I'm not saying you're wrong, but I am saying that the free market has solutions being made all the time. In the past year, I see it for what it is: an amazing system that always manages to self-correct itself.

I'm not saying you're wrong, but I am saying that the free market has solutions being made all the time. In the past year, I see it for what it is: an amazing system that always manages to self-correct itself.
That has always managed to self-correct itself. It has not yet been forced to deal with chronic shortage of essential resources. We can't make assumptions about the "invisible hand", that's where faith in the Markets becomes superstition and we may as well start capitalising the word.

That has always managed to self-correct itself. It has not yet been forced to deal with chronic shortage of essential resources. We can't make assumptions about the "invisible hand", that's where faith in the Markets becomes superstition and we may as well start capitalising the word.
You, my friend, are shrugging Atlas. Don't. It has done amazing things, and will continue to do so for a very, very long time. But I can't really be surprised that you take on this attitude. After all, you believe that the Soviet Union was more innovative than the free world in every aspect. I do pity you.
Edit:
In the past hundred years, particularly during the two world wars, there were critical resource shortages to the economy, mostly in the form of rationing. There have been two countries, the UK and the US, that have gone through the world wars a bit scathed, but pretty powerful economically. Even the oil embargo of 1973 wasn't nearly as bad on the US as it might have been on, say, Japan or Malaysia. Surprisingly, the US and the UK were the two most advanced market systems for a very long time, and arguably still are.

The problem was that the free market during that time did nothing to try and create jobs for the rest of society. People were being layed off from jobs left and right. As a result, they ran out of money. That basically stopped the purchasing power of the driving force of the economy. Without the driving force behind it, the companies would not be able to make profits, which would prevent them from hiring people, which would prevent the economy from recovery. FDRs federal work programs were really the only thing that actually kept people making money and pushing the economy forward.
Only somewhat. They did create jobs, but at what costs? Far higher taxes, much bigger government, and government takeover of an increasing share of the economy.
I think you are thinking along the lines of Keyesian economics. He was a pretty good thinker, and loved FDR for trying his views out. However, his theory of a reserve supply of money works equally as well with private savings accounts. A very big part of the system is personal responsibility. Americans have never been big savers, and if we did save a little more, the Great Depression would be appropriately called the Great Recession. That gives me belief that there was only one good thing that came from the New Deal: the creation of the FDIC.

Until we get there, I'll make fun of my favorite little cartel.
Saudi Arabia bashing, anyone?