Tuesday, March 13, 2007

Cartel blanche

Awash in the latest tales of the criminal Bush administration, couched as they are in terms of "politicization" of the Justice Department, I found myself seeking out other news -- equally grim of course -- and noticed some stories about the increasing price of gasoline across the country, including California, Massachusetts and Iowa. Naturally, my curiosity peaked while knowing that the current agitation against Iran and the varying reports of war preparations were bound to have their expected effects on the markets. After the sudden drop in oil prices in the months preceding the November mid-term elections, oil prices have, once again, crawled back to levels oil producers find acceptable.

Indeed, the oil price drop had concerned OPEC to the point that they were considering slashing production, which they did, cutting production in their previous two meetings, in an effort to bring things back to more enjoyable levels of profit. However, now that further White House threats have created "uncertainty," prices have risen again and OPEC now says that the price level is just about right.
The Organisation of Petroleum Exporting Countries, whose members will gather in Vienna on March 15, slashed production at their two previous conferences. Oil ministers from Kuwait, Iran, Qatar, Algeria, Libya and Indonesia have said in the past month that more cuts weren't needed because crude oil has traded close to $US60 a barrel for the past five weeks, reaching a two-month high on March 1.

"Prices are right about where OPEC wants them to be, so they will take no action," said Peter Beutel, president of Cameron Hanover, a Connecticut energy consultant.

"Oil at $US50 is too low for most of the members and $US70 is seen as too high to be sustainable."
Read those words again: prices are right about where OPEC wants them to be.

There was a lot of talk prior to the election about the falling oil prices with some, like me, casting skepticism on the drop and expressing a certain degree of suspicion about it. I was hardly alone as polls revealed that a majority of Americans also believed that the prices were being manipulated. Bush supporters and even some level-headed folks, such as Steven Taylor, scoffed at such a notion, generally relying the painfully naive argument that oil is traded on the "free market" and therefore couldn't possibly be controlled by any one entity. It would seem that Dr. Taylor was unfamiliar with the existence of OPEC, an organisation specifically designed for the express purpose of controlling the price of oil.

There is nothing terribly earth shattering in such little noticed news, what with Gonzales and demands for his resignation commanding most attentions. But I only insist on highlighting it because it speaks to larger delusions we have about world markets, especially as regards the petroleum industy. That one simple phrase -- prices are right about where OPEC wants them to be -- should be sufficient to dispel the fanciful notion that the price of oil is determined by a "free market," and rather enforce the reality that it is where it is because a certain small group of people want it to be there.

Now, that hardly sounds like a free market, does it?


Blogger spiiderwebâ„¢ said...

There has never been anything "free" about the oil market.

Then ya got your wholesalers. I owned a gas (petrol) station and just as summer came, with increased travel by automobile, the wholesale price spiked.

Supply and demand? Hahaha.

1:15 AM  

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