The Invisible hand (of God?) lowers Oil prices!

[Arthur Denton]

I stumbled upon this article at BBC, and honestly, it frightens me:


Petrol pump pilgrims keep faith
By Greg Wood and Sandra Shmueli
BBC News, New York

Rocky Twyman (left) leading a prayer vigil at a Shell station
Rocky Twyman says God, not market forces, brought prices down

A prayer group in Washington DC is claiming the credit for the recent sharp drop in the US price of petrol.

Rocky Twyman, 59, a veteran community campaigner, started Pray At The Pump meetings at petrol stations in April.

Since then, the average price of what the US calls gasoline has fallen from more than $4 a gallon to $3.80.

"We don't have anybody else to turn to but God," Mr Twyman told the BBC. "We have to turn these problems over to God and not to man."

His first pilgrimage to the pump was prompted by fellow volunteers at the First Seventh Day Adventist Church in Petworth, a working-class neighbourhood of the US capital, who were struggling with higher gasoline prices.

He led them down the block to the local Shell gas station to pray. And over the months since then, he has held similar prayer meetings at pumps all over the US.

Prayer warriors

"We were down in Huntsville, Alabama. We finished praying," Mr Twyman said. "Immediately the owners came out and changed the gas prices. They brought it down. We had marvellous success down in St Louis, Missouri."

This week the group returned to the site of their first prayer meeting to celebrate. Singing "We shall overcome," they changed the words of the well-known hymn to "We'll have lower gas prices".

Mr Twyman is sceptical that market forces might be responsible for the lower prices. But he and his prayer warriors have changed their motoring habits.

"We believe not just in prayer - because we believe that faith without works is dead. So we've encouraged people to car-pool more and organise their days more, because it's a combination of faith with these other factors."

Pray At The Pump plans to build on its success and drive gasoline prices even lower. In the words of Rocky Twyman: "We just thank God for blessing us with small victories and we expect greater things to come."

I believe that even Adam Smith, who believed in the invisible hand on the market, will be turning over in his grave. Maybe he'll become a zombie to come after such woo lovers. Anyway, if people are so concerned about oil prices, ain't it easier to actually put pressure on politicians and fight for the ethanol and biofuel alternatives? Next week the prices will go up cause the US fights Iran and those loonies will be convinced it is the Devil's work.

Also, they seem to be bullying the owner of the pumps into lowering prices. That's maybe the only positive side for that: They may actually end disrupting a cartel on divine intervention. (joke)

Thoughts?

[Furi]

Praying, Pfffft! it is my personal Boycott that is doing it (I will accept all price drops as total proof that my system is working)

[Francesca R]

I don't have any interest in the parts of this OP connected with religion, which is most of it, but anyway:

Anyway, if people are so concerned about oil prices, ain't it easier to actually put pressure on politicians and fight for the ethanol and biofuel alternatives?1) There is little point in increasing ethanol supply/demand just to lower oil demand. Unless it is a "better fuel". Is it?
2) No, actually lobbying government is not terribly easy so much as expensive (in respect of side-payments etc.) This is why cash-rich companies do it a bit more than prayer congregations

Also, they seem to be bullying the owner of the pumps into lowering prices.The global oil corporations own most of the pumps--not the service station attendants. Micro-scale civil disobedience vying for publicity stands a whelk's chance in a supernova of intimidating Big Oil

They may actually end disrupting a cartel on divine intervention. (joke)Was the bit about oil suppliers being a cartel a joke though?

[Arthur Denton]

I don't have any interest in the parts of this OP connected with religion, which is most of it, but anyway:

1) There is little point in increasing ethanol supply/demand just to lower oil demand. Unless it is a "better fuel". Is it?
2) No, actually lobbying government is not terribly easy so much as expensive (in respect of side-payments etc.) This is why cash-rich companies do it a bit more than prayer congregations

Sugar cane ethanol is ecologically a better fuel, and a cheaper one too (compared to current oil prices). Biofuels vary on efficiency and price, and everyone is looking for alternatives to Gasoline and other oil-based chemicals, for the fact that you need other sources of energy to make up for the power of oil in the matrix of energy consumption.
That's not exactly my point here, of course, I meant to talk about the woo (as you pointed) but the production of Ethanol in Brazil and the potential production of celulosis ethanol in the US can help the downfall of gasoline prices everywhere, because the technology to change cars is cheap and widely used in Brazil since the 80's (pro-alcool anyone?) and the fuel is very reliable. The mix with the gasoline that brazilians do helps the government control prices (well, it kind of softens the impact of the rising prices of oil) and, since ethanol is made in a farm, the very plants who generate it allow us to pollute a lot less than with Oil. I'll find some statistics for you later, i'm not finding the article I wanted at this moment.

Dear F, I don't mean lobby: I mean popular pressure. Voting. Demand. Voicing of opinions. Lobbying is an alternative yes, but may generate a lot of... how shall I put it... conflicts of interests that, with the power of democracy, can be avoided.

The global oil corporations own most of the pumps--not the service station attendants. Micro-scale civil disobedience vying for publicity stands a whelk's chance in a supernova of intimidating Big Oil

Was the bit about oil suppliers being a cartel a joke though?

Oh, of course, I don't expect the giant oil corporations to actually think twice about raising the prices of oil derivatives, their power is so vast in the economy that it would be foolish, yes. I meant the smaller traders, the pump owners, or actions taken in the micro scale, to avoid midia problems.

Yes and no. I have few evidence to support that in the US this is true. The fuel market is classically a "cartelized" one. (I believe there's a better word, cartelized sounds just wrong, help me :)) In Brazil, however, the departments of economy responsible for combating cartels are deeply interested in fuel, and many such organizations were found - not many dismantled, most of the action was just for the show, but that's a detail. The important thing here is that there is proof that there's a powerful cartelization (argh!) on fuel, since everyone is dependent on it, the profit should be marginal, but it ain't really. What I wanted to point out with that particular cartel phrase is that IF and only If there was a cartel, the prayers made a point: Scaring the s-word out of the owner of the gas pumps, lowering the prices for popular positive appeal and midia influence.

While I am still to check it out, it seems that gas prices reduced in the US due to the strengthening of the US dollar, with the "end" of the turmoil in the loaning market. I will check it out, though, maybe new evidence (cool evidence) may be found.

[Francesca R]

Sugar cane ethanol is ecologically a better fuel, and a cheaper one too (compared to current oil prices).
Sugar cane ethanol is certainly much more efficient than maize ethanol. Currently the US government imposes tariffs on imported Brazilian ethanol in order to favour the domestically produced maize product. Are you from Brazil? I mention the US because that is where the prayer protest you link took place.

Dear F, I don't mean lobby: I mean popular pressure. Voting. Demand. Voicing of opinions. Lobbying is an alternative yes, but may generate a lot of... how shall I put it... conflicts of interests that, with the power of democracy, can be avoided.Either way, the use of political means to further tweak market mechanisms does not auger for a good outcome. Production of maize-based ethanol in the US has decent political support already (farmers, hawks concerned about dependency on the middle east, oil companies . . .) even taxpayers who perhaps have not noticed what the generous subsidies cost, nor how inefficient it really is.

Oh, of course, I don't expect the giant oil corporations to actually think twice about raising the prices of oil derivatives, their power is so vast in the economy that it would be foolish, yes. I meant the smaller traders, the pump owners, or actions taken in the micro scale, to avoid midia problems.My bet would be that the pump price fell for unrelated reasons (well, because of the falling oil price).

The important thing here is that there is proof that there's a powerful cartelization (argh!) on fuel, since everyone is dependent on it, the profit should be marginal, but it ain't really. This is not really correct. Everyone being "dependent" on a good does not mean that its supply is cartelised, or that the profit should be marginal. There are considerable barriers to entry for anyone who wishes to supply oil, many of them non-economic. That actually obviates the need for cartels. And I think that OPEC, which only controls 50% of daily oil production, is not a cartel in the true economic sense.

What I wanted to point out with that particular cartel phrase is that IF and only If there was a cartel, the prayers made a point: Scaring the s-word out of the owner of the gas pumps, lowering the prices for popular positive appeal and midia influence.It may intimidate a lone retailer to operate at a loss out of fear, I don’t know. But that woud be neither of market economics nor democracy, nor tackling the advertised "problem".

While I am still to check it out, it seems that gas prices reduced in the US due to the strengthening of the US dollar, with the "end" of the turmoil in the loaning market. I will check it out, though, maybe new evidence (cool evidence) may be found.Oil has fallen because, . . . well prices fall and rise. Weak economic statistics from economies outside the US (not Brazil) were probably an influence on that, and on the dollar.

[lomiller]

I’d suggest a slumping global economy reducing demand is at least as big a factor as a rising US dollar. This is not a good signal for the US and could even promote the type of false optimism that can produce bubbles.

[Arthur Denton]

Sugar cane ethanol is certainly much more efficient than maize ethanol. Currently the US government imposes tariffs on imported Brazilian ethanol in order to favour the domestically produced maize product. Are you from Brazil? I mention the US because that is where the prayer protest you link took place.

Yes, Brazilian. Yes, the link mentions the US but I'm sure that there are nutcases here doing the same. Also, those tariffs you're talking about are, so far, good for me, specifically, since my car goes both on ethanol and gas (I assume that if the barriers fall I'll have a biiig deal of increased cost over mileage).


Either way, the use of political means to further tweak market mechanisms does not auger for a good outcome. Production of maize-based ethanol in the US has decent political support already (farmers, hawks concerned about dependency on the middle east, oil companies . . .) even taxpayers who perhaps have not noticed what the generous subsidies cost, nor how inefficient it really is.

What, are you neo-liberalist? The non interventionism doesn't work quite well, it is proven. Companies must have a lot of freedom to act, yes, I agree with that, but government must control certain areas. That's what, to a certain extent, your government tried to do exogenously - invading Iraq and developing a dealer for life. It backfired however, and the only quality of Bush government I could see on this whole case is that Bush had the balls to do it. The lobby that those maize farmers have is, in fact, related to the orange juice one. Agriculture in the US and Europe is considered untouchable, and in the EU you can often see farmers who plant nothing at all in their land, and are paid for it. The drawback is that yes, the rest of the taxpayers are paying the bill. But despite the fact that they've got political power, I believe that if the rest of the people (I can only imagine that the rest of the people is the majority, or the US would drown in corn) would look at this bill, the government support over this kind of policy would fall, and no prayers for the rising price of fuels will be needed. Not anymore.


My bet would be that the pump price fell for unrelated reasons (well, because of the falling oil price).

Yes, but not only that. The price of oil has reached, once again, 114 dollars a barrel (calling this data from my mind, it may be Reals, sorry) these days, and it helped. But that was also improved due to a stronger health of the US economy which resulted in a raise on the relative value of the US Dollar, therefore helping the lowering on the prices of fuel derivatives.


This is not really correct. Everyone being "dependent" on a good does not mean that its supply is cartelised, or that the profit should be marginal. There are considerable barriers to entry for anyone who wishes to supply oil, many of them non-economic. That actually obviates the need for cartels. And I think that OPEC, which only controls 50% of daily oil production, is not a cartel in the true economic sense.

Why do you say that? OPEC is not a cartel? I mean, the OPEC reserves will end someday. They have no riches. More countries starting producing more oil than they did, and that made them less potentially rich in the past. Now, the power of their cartel is smaller if you consider the market more "competitive" but the oil prices have no discernible differences between countries - except in the relations between Cuba, Bolivia and Venezuela, AFAIK, but they're suicidal countries economically-wise.

In fact, you're referring to a monopoly, not a cartel. Monopoly is when you have one supplier and loads of buyers. But the OPEC is not a monopoly, it is an Oligopoly, when some suppliers have loads of buyers. It is, in fact, the situation that occurs more often. The fact that they control the prices of their sales is what constitutes a cartel (well, prices and policies) and not the amount of suppliers in the economy.


It may intimidate a lone retailer to operate at a loss out of fear, I don’t know. But that woud be neither of market economics nor democracy, nor tackling the advertised "problem".

I, for one, wouldn't like a bunch of loonies preaching near one of my gas pumps because it is dangerous and attracts lots of uncalled attention. Lowering the prices mean that you're giving in to their demand, and I'd consider it charity. I wouldn't forbid someone to pray though, even though I believe it helps nothing.


Oil has fallen because, . . . well prices fall and rise. Weak economic statistics from economies outside the US (not Brazil) were probably an influence on that, and on the dollar.

Hm... nope. I'd say what you said is woo, but only because I don't believe in the "invisible hand". Prices do not rise and fall because they rise and fall - they rise and fall because of the endless needs and scarce resources, due to the choice of customers. Gas is a #1 priority now, therefore, the tendency of its price is to go higher, into insane levels. There's a prediction that says it'll reach 200 us dollars a barrel in the next few years. It's something to really worry about - so, people will choose to buy economic cars, dump the SUV's and try cheaper fuel. The inverse thing happened with, say, trans fat food. People chosen not to buy it - even though it's cheaper - and the prices have fallen cause there's more trans fat food than there was in the past. It means that eventually, this will become economically not viable. Same will happen with Gas - but in the other hand. Energy costs will be so huge, that humankind will eventually be forced to substitute it. Therefore, supply, demand and choice determine the market, with some help from the government. No invisible hand, no preaching, no heroics, no morale, nothing. And if you're receiving subsides, you're also paying the bill later.

I’d suggest a slumping global economy reducing demand is at least as big a factor as a rising US dollar. This is not a good signal for the US and could even promote the type of false optimism that can produce bubbles.

Everyone at the markets is scared right now. Despite the fact that the US economy has behaved badly lately, it is still safer than some other economies. I believe that these bubbles you mention won't happen again in the short and medium term, not new ones, even though the ones responsible for this current crisis will still be popping out every now and then till the machine oiled with the blood of workers start working well again. I honestly don't think it is necessarily a bad sign, but an economy as such as yours need a better governor team, that is true. What to do? Ask Alan Greenspan. He'll surely help.

[Francesca R]

Yes, Brazilian. Yes, the link mentions the US but I'm sure that there are nutcases here doing the same. Also, those tariffs you're talking about are, so far, good for me, specifically, since my car goes both on ethanol and gas (I assume that if the barriers fall I'll have a biiig deal of increased cost over mileage).They are not good for the price of energy—not even to you. If the US dropped tariffs that would not raise the price of ethanol for Brazilians. At least, there is little evidence that this is what happens.

What, are you neo-liberalist? The non interventionism doesn't work quite well, it is proven. Companies must have a lot of freedom to act, yes, I agree with that, but government must control certain areas. That's what, to a certain extent, your government tried to do exogenously - invading Iraq and developing a dealer for life.Please check my location which has been listed below my name since I joined here (and thank you for adding your own)

Why do you say that? OPEC is not a cartel? No, OPEC is not a cartel. There is (as has been shown repeatedly over many years) insufficient incentive for OPEC members not to cheat on the targets that the organisation sets for their output. Therefore it falls prey to the failure of collective action. And this is disregarding the observation above, which is that OPEC only "controls" half of world production (except it's ability to control that half is limited). A cartel needs to control at least 80% IMO, and to be motivated by stronger selective incentives for it to wield any meaningful monopoly power.

I think a lot of wrong-headed analysis blames "OPEC" for the rise in the oil price. Personally I believe it is the result of highly inelastic demand and supply, which in turn is influenced by the destruction of many rational incentives to develop oil resources, thanks to thugocratic government behaviour in many parts of the world. This better fits the evidence than "OPEC did it". If it was an oil cartel, why didn't they do it sooner, and why has the price fallen back?

In fact, you're referring to a monopoly, not a cartel. Monopoly is when you have one supplier and loads of buyers. But the OPEC is not a monopoly, it is an Oligopoly, when some suppliers have loads of buyers. It is, in fact, the situation that occurs more often. The fact that they control the prices of their sales is what constitutes a cartel (well, prices and policies) and not the amount of suppliers in the economy.
False—see above.

I, for one, wouldn't like a bunch of loonies preaching near one of my gas pumps because it is dangerous and attracts lots of uncalled attention. Lowering the prices mean that you're giving in to their demand, and I'd consider it charity.False. Charity is voluntary. "People-power" or intimidation is anti-capitalist and anti-democratic. (However, I doubt that the actions of the prayer group that you referred to were very intimidatory)

Hm... nope. I'd say what you said is woo, but only because I don't believe in the "invisible hand". [ . . . ] Therefore, supply, demand and choice determine the market, with some help from the government. No invisible handEr, that is Smith’s invisible hand. It is highly questionable whether many or any governments have "helped" though in the case of anything approaching efficient resource allocation in the production of oil.

[JonnyFive]

A $0.20 drop in gasoline prices? Praise Jesus!

If God is so powerful, why couldn't he bring us back to good old $0.95 a gallon gas? He's a cheeky bastard, that's why.

[lomiller]

No, OPEC is not a cartel. There is (as has been shown repeatedly over many years) insufficient incentive for OPEC members not to cheat on the targets that the organisation sets for their output. Therefore it falls prey to the failure of collective action. And this is disregarding the observation above, which is that OPEC only "controls" half of world production (except it's ability to control that half is limited). A cartel needs to control at least 80% IMO, and to be motivated by stronger selective incentives for it to wield any meaningful monopoly power.

I think a lot of wrong-headed analysis blames "OPEC" for the rise in the oil price. Personally I believe it is the result of highly inelastic demand and supply, which in turn is influenced by the destruction of many rational incentives to develop oil resources, thanks to thugocratic government behaviour in many parts of the world. This better fits the evidence than "OPEC did it". If it was an oil cartel, why didn't they do it sooner, and why has the price fallen back?


Oil is a relatively price inelastic product, and excess capacity is pretty tight. Taking even a few million barrels off the market for a prolonged period of time could have a significant price impact. Other then possibly Russia and Saudi Arabia, I’m not sure anyone has high enough production levels to come out ahead individually, but OPEC could certainly do it if they could exert real control over its members.

I agree that OPEC isn’t manipulating prices, in fact they are producing all the oil they can as far as I can see, but they certainly could keep prices very high if they could control their members.

[Francesca R]

Even if they could control their members (which needs more powerful incentives than they have at their disposal), there is the remaining 50% of output that is beyond their control and which could step in to fill the gap. If other oil produces do not have the capacity to do that (which they in general do not, presently) that is inelasticity of supply which is the force that keeps the price up, not cartel power.

[lomiller]

Inelastic supply and cartel/monopoly pricing are not mutually exclusive. In fact cartel’s are more effective (or dangerous depending on your perspective) when supply is inelastic. 80% of the market may be a good rule of thumb, but a rule of thumb is still just that, even with only 50% of the market OPEC would stand to come out a winner by keeping prices high.

As I said, I think that is the case currently nor are they disciplined enough to do it, but I see no other reason why they couldn’t.

[Arthur Denton]

They are not good for the price of energy—not even to you. If the US dropped tariffs that would not raise the price of ethanol for Brazilians. At least, there is little evidence that this is what happens.

Actually, the evidence exists. Since our production started being exported, the prices of alcohol started to rise (there's a rather long period of adaptation, where the crops need to be sown, the soil prepared, to raise the production, and the demand is really high, in fact, a two decade high), and the price per liter (in Reais) went from R$0,95 to R$1,49, but that's in my town, where it aint expensive. Alcohol was already bougth by me for R$1,89 the liter, because I had no alternative in that ocasion. I believe it will raise prices, and since, internally, the sugar cane groups are politically strong, the prices won't just drop when the production increases afterward.

Please check my location which has been listed below my name since I joined here (and thank you for adding your own)

So sorry, dear, I meant no harm. Erase that, will you? :) (I mean what I said, not the location).

No, OPEC is not a cartel. There is (as has been shown repeatedly over many years) insufficient incentive for OPEC members not to cheat on the targets that the organisation sets for their output. Therefore it falls prey to the failure of collective action. And this is disregarding the observation above, which is that OPEC only "controls" half of world production (except it's ability to control that half is limited). A cartel needs to control at least 80% IMO, and to be motivated by stronger selective incentives for it to wield any meaningful monopoly power.

The organization exists. It is not being effectively seen as it because the prices of oil went absurdly over anything their own most insane dreams could want. But they still have power, and it is naïve to say that they do not interfere in prices because oil is just the major commodity that's in dispute nowadays. Cars, electrical energy, planes, plastic, they're the very foundation of our society, and that means that if they have half of the world production, you gotta check out the rest of the distribution of oil production around the globe. None of the other producers hold more than 10% of the total productions, and they're far less organized than the OPEC – therefore, it is a cartel. According to the books and wikipedia:

A cartel is a formal (explicit) agreement among firms. Cartels usually occur in an oligopolistic industry, where there are a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion is to increase individual member's profits by reducing competition. Competition laws forbid cartels. Identifying and breaking up cartels is an important part of the competition policy in most countries, although proving the existence of a cartel is rarely easy, as firms are usually not so careless as to put agreements to collude on paper.[1][2]
Several economic studies and legal decisions of antitrust authorities have found that the median price increase achieved by cartels in the last 200 years is around 25%. Private international cartels (those with participants from two or more nations) had an average price increase of 28%, whereas domestic cartels averaged 18%. Less than 10% of all cartels in the sample failed to raise market prices.
Therefore, having the policies shared, and trading together, means that they're a cartel. They're not using their price control at this moment? No, but because the demand has grown so much in China, Brazil, India, and then the prices skyrocketed, which was very good for them, since there was no effort for that. Was I a cartel in such situations, I'd just pump more and sell more, while this miracle price is still there. US invaded Iraq, Iran causes instability in the region, you don't know who's the next reliable salescountry to the US in the area, and the US is the biggest consumer. Another argument for the OPEC being a cartel, maybe not effective but still a cartel, is the set of characteristics:

There are several factors that will affect the firms' ability to monitor a cartel:[4]
1.Number of firms in the industry.
2.Characteristics of the products sold by the firms.
3.Production costs of each member.
4.Behaviour of demand.
5.Frequency of sales and their characteristics.
[edit] Number of firms in industry
The lower the number of firms in the industry, the easier for the members of the cartel to monitor the behaviour of other members. Given that detecting a price cut becomes harder as the number of firms increases, the bigger are the gains from price cutting.
The larger the number of firms the more probable one of those firms being a maverick firm, that is, a firm known for pursuing aggressive and independent pricing strategy. Even in the case of a concentrated market, with few firms, the existence of such a firm may undermine the collusive behaviour of the cartel.[5]
[edit] Characteristics of products sold
Whether the products sold by cartels are homogeneous or differentiated also will affect the ability of monitoring and therefore the long-term sustainability of the cartel. Not only do homogeneous products make agreement on prices and/or quantities easier but also they facilitate monitoring. If goods are homogeneous, firms know that a change in their market share is more likely due to a price cut (or quantity increase) by another member. Instead, if products are differentiated, changes in quantity sold by a member may be due to changes in consumer preferences or demand. In the first case, change in one firm's demand is clearly due to cheating by another member, whereas in the second case members may well not be cheating and still demand patterns change.[6]
[edit] Production costs
Similar cost structures by the firms in a cartel make it easier to co-ordinate given that the firms will have similar maximizing behaviour as regards prices and output. Instead, if firms have different cost structures then each will have different maximizing behaviour and therefore will have an incentive to price or produce a different quantity. Changes in cost structure (for example when a firm introduces a new technology) also gives a cost advantage over rivals, making co-ordination and sustainability more difficult.[7]
[edit] Behaviour of demand
If an industry is characterised by a varying demand (that is, a demand with cyclical fluctuations) this makes it more difficult for the firms in the cartel to detect whether such changes are due to demand fluctuations or to cheating by another member of the cartel. Therefore, in a market with demand fluctuations, monitoring is more difficult.[8]
[edit] Characteristics of sales
As said, short-term gains from cheating (relative to long-term gains from collusion) make it more likely that a member will cheat. These short-term gains will partly depend on the frequency and amount of sales. If sales are not frequent (for example in some bidding markets where firms may have ten selling contracts) then the firms in a cartel may have an incentive to undercut the price of other sellers and win the contract (given that overall they know they will be few possible contracts). Moreover, the higher the amount of output to sell the higher the incentive for the firm to cheat. Therefore, low frequency of sales coupled with huge amounts of output in each of these sales make cartels less sustainable.[9]


But, as a matter of fact, I have not thought at large scale cartels: I was thinking, in the original post, over the small cartels that rule our every day operation: The ones that the associations of gas stores owners form, which are easier to influence. I don't blame OPEC for the rise of oil price – now. That would be folly. But OPEC, along with the other suppliers, the amount of barriers to investments, and the rising demand will solve this question, I'm sure. The maintenance of prices in the 80's and 90's is OPEC's fault, IMO, far more directly.

I think a lot of wrong-headed analysis blames "OPEC" for the rise in the oil price. Personally I believe it is the result of highly inelastic demand and supply, which in turn is influenced by the destruction of many rational incentives to develop oil resources, thanks to thugocratic government behaviour in many parts of the world. This better fits the evidence than "OPEC did it". If it was an oil cartel, why didn't they do it sooner, and why has the price fallen back?

Recession in the 80's, several world crisis, relative stability in their region, and they did raise the prices, yes, and as a matter of fact they made it interesting for Petrobras to invest during the 80's and 90's on expansion. If OPEC hadn't acted back then, Proalcohol wouldn't have been put down. They have responsibility in this crisis? I'm sure they do. But they're not the only culprit.



False. Charity is voluntary. "People-power" or intimidation is anti-capitalist and anti-democratic. (However, I doubt that the actions of the prayer group that you referred to were very intimidatory)

Er, that is Smith’s invisible hand. It is highly questionable whether many or any governments have "helped" though in the case of anything approaching efficient resource allocation in the production of oil.

Charity is volutary? The whole world is in the middle of an oil crisis right now, with prices skyrocketing (with a mild receding in the last few weeks) and some people gather in front of your gas station. You're going along with a small regional cartel. They start praying, for woo sake, and televisions come to film it, since the news has nothing decent to announce. What the gas station owner does? Lowers prices in the scene. Raises later. The prices have fallen lately due to the strengthening of the dollar, to a certain pressure from biofuels (even though too weak) and to a lowering in the US demand (check out the OPEC site, they have a few PDF's on the matter, and their numbers agree with this). After this whole turmoil in the world, was I a gas station owner, I'd lower my prices too, and the small cartels who have established in the many countries through the world lost power because of that. Power, not profit. People are still buying – but the public opinion on the prices has become to severe to be left aside lately.

It is questionable that the governments actions actually led that to happen? The US protects an inefficient corn industry, causing a major concern over the food market. Barriers are made thorough the world to the alternatives. No policies to research alternative have been effectively made since the 70's oil crisis. There's war and famine afoot, and the most looked after good is oil, followed quickly by ore. The world governments played the most important part on it – encouraging, in fact, the crisis, by raising the food production costs in Europe and US through subsides, and the fact that they're liberalists only in the paper makes the position of the rest of the world (us whatevers) much more vulnerable. The G factor, which influenced consumer choice, lead investment, had a major role here. Therefore, the G (government) I'm speaking about, being influent, tells me that actually its not the invisible hand, but actually a Keynesian hand, showing how effective politics could be. The problem lies exactly there: it could be. The policies were always short term ones. Few energy creation measures were taken thinking about the possible impact of oil prices, and now we're here, fighting with short sticks with the tiger of famine, and the bottleneck of energy. They were not efficient on that, as you say, and that's the reason I dismiss that the invisible hand would fix it eventually (what I meant originally, and what is said often in economical debacles).


A $0.20 drop in gasoline prices? Praise Jesus!

If God is so powerful, why couldn't he bring us back to good old $0.95 a gallon gas? He's a cheeky bastard, that's why.

THAT would be a hell of a miracle :D

Oil is a relatively price inelastic product, and excess capacity is pretty tight. Taking even a few million barrels off the market for a prolonged period of time could have a significant price impact. Other then possibly Russia and Saudi Arabia, I’m not sure anyone has high enough production levels to come out ahead individually, but OPEC could certainly do it if they could exert real control over its members.

I agree that OPEC isn’t manipulating prices, in fact they are producing all the oil they can as far as I can see, but they certainly could keep prices very high if they could control their members.

Even if they could control their members (which needs more powerful incentives than they have at their disposal), there is the remaining 50% of output that is beyond their control and which could step in to fill the gap. If other oil produces do not have the capacity to do that (which they in general do not, presently) that is inelasticity of supply which is the force that keeps the price up, not cartel power.

The lack of coordination is temporary. You'll see when the prices lower. It's a high in prices, it's positive for them. Put it under 80 dollars a barrel, and you'll see them squeal together, as one. Once again, the prices have been a byproduct of a series of factors, not only one player, yes, but first (maybe unclear in my posts) I wanted to discuss the price organization between gas station owners, then we were discussing if OPEC was or was not a cartel, then it became about being an effective or not cartel. Maybe that can be used in another thread, it is really interesting. Yes, the pressure is in the demand side: but the organization of such groups help to hinder the new investments. Why a powerful group such as OPEC won't aim to double their production or announce such intentions? The crowd would go wild and the prices would tend to lower. It's not on their interest – they're the only producers who haven't done that. Russia, Venezuela, Brazil, US, all of them are looking for alternatives. I haven't heard or seen anything from the OPEC so far.

Inelastic supply and cartel/monopoly pricing are not mutually exclusive. In fact cartel’s are more effective (or dangerous depending on your perspective) when supply is inelastic. 80% of the market may be a good rule of thumb, but a rule of thumb is still just that, even with only 50% of the market OPEC would stand to come out a winner by keeping prices high.

Ditto. They need not to make the same price policy in their midst because the prices are already satisfactory high, and they wont raise their supply to the world, simple as that, because they're well connected.


As I said, I think that is the case currently nor are they disciplined enough to do it, but I see no other reason why they couldn’t.

I disagree. They're organized, yes, it is not an advantage to them right now. Why to spend time and effort when prices are high? Mark my words: If the oil barrel ever lowers under 80 bucks a barrel we'll see these guys jumping high. Like popcorn.

[Arthur Denton]

By the way, sorry for the late reply - I was with a terrible flu and headache the last two days, couldn't really concentrate.

[lomiller]

I disagree. They're organized, yes, it is not an advantage to them right now. Why to spend time and effort when prices are high? Mark my words: If the oil barrel ever lowers under 80 bucks a barrel we'll see these guys jumping high. Like popcorn.


Every OPEC country but Saudi Arabia has been producing and exporting full out since the late 80’s. This makes is a cartel in name only, IMO, because they are not collectively working to control pricing. They are letting Saudi Arabia set the pricing and it and simply reaping the benefits.

[Arthur Denton]

Every OPEC country but Saudi Arabia has been producing and exporting full out since the late 80’s. This makes is a cartel in name only, IMO, because they are not collectively working to control pricing. They are letting Saudi Arabia set the pricing and it and simply reaping the benefits.

Because of conjuncture, no less. The prices are high, there's no need to coordinate. But they're still together, one entity, and as long as the need to take action is zero, they will prefer to go into market freedom.

[lomiller]

You are correct, at present they don’t need to, but when prices were lower back in the 90’s and late 80’s they were unable to keep their member in line to bring prices up. It’s been 25 years since OPEC was able to successfully manipulate world oil prices.

[Francesca R]

Actually, the evidence exists. Since our production started being exported, the prices of alcohol started to rise (there's a rather long period of adaptation, where the crops need to be sown, the soil prepared, to raise the production, and the demand is really high, in fact, a two decade high), and the price per liter (in Reais) went from R$0,95 to R$1,49, but that's in my town, where it aint expensive. Alcohol was already bougth by me for R$1,89 the liter, because I had no alternative in that ocasion. I believe it will raise prices, and since, internally, the sugar cane groups are politically strong, the prices won't just drop when the production increases afterward. I will concede that a spike in ethanol demand—say, caused by the US lowering tarrifs—could cause a temporary price rise elsewhere. Not for long.

So sorry, dear, I meant no harm. Erase that, will you?Right, sweetcheeks. Sowwy you were down with flu and a headache.

The organization exists. It is not being effectively seen as it because the prices of oil went absurdly over anything their own most insane dreams could want. But they still have power, and it is naïve to say that they do not interfere in prices because oil is just the major commodity that's in dispute nowadays. Cars, electrical energy, planes, plastic, they're the very foundation of our society, and that means that if they have half of the world production, you gotta check out the rest of the distribution of oil production around the globe. None of the other producers hold more than 10% of the total productions, and they're far less organized than the OPEC – therefore, it is a cartel. According to the books and wikipedia:They (OPEC) do not and cannot manipulate the oil price through collusion to set quantity of production. The last time they did was 1973 when they were able to collude to shut down one eighth of world production overnight. They could not do that now. If they could—then why were they not busy with collusion in 1999 when the price of a barrel was $10?

Your wikipedia quote fails to mention that—strictly—all the member firms of an oligopoly must join a special-interest-group for it to be a cartel (although it does imply this). Practically, cartels can exist (be effective) if their members control upwards of 80% of supply. And even then it is not a given that there will be enough incentive for collusion, unless there is a small number of firms. The best text I have come across about cartels and the like (containing very detailed theoretical and empirical examination) is The Logic of Collective Action—Public Policy and the Theory of Groups written by Mancur Olson in the 1960s. I think it is still very relevant

[wolves_skeptic]

This is presumably the same God who gave us a limited supply of oil and although has the power to do something sits back and watches how the black gold tears apart countries, keeps the rich rich and the poor poor and therefore encourages greed. (One of the seven deadly sins, apparently).

Great. :)

[JonnyFive]

This is presumably the same God who gave us a limited supply of oil and although has the power to do something sits back and watches how the black gold tears apart countries, keeps the rich rich and the poor poor and therefore encourages greed. (One of the seven deadly sins, apparently).

Great. :)

He's been pretty pissed at us since that whole apple fiasco. You ever site down and read the Bible? Nobody holds a grudge like God!

[Arthur Denton]

On a sidenote:



Opec invites Brazil to join group
Iranian oil field
Iran is one of Opec's 13 members

Iran has invited Brazil to join oil producers' cartel Opec, Brazil's energy and mines minister has said.

The moves comes after Brazil recently announced finding major sources of offshore oil, prompting significant international attention.

Brazil is considering the invite. Its National Energy Policy Council has the final word on whether it wants to join.

While oil prices have fallen from record levels, many analysts say the longer trend remains high prices.

As a member of the oil producers' organisation, Iran can suggest the membership of another country.

Untapped oil

In April, the head of Brazil's National Petroleum Agency said an oil field offshore from Rio de Janeiro's coast could contain 33 billion barrels.

That finding came after state-owned Petrobras said the offshore Tupi field was estimated to hold between five billion and eight billion barrels of untapped light oil.

The discoveries could turn Brazil into a major oil exporter, say analysts.

Slower economic growth has dented demand for oil, pushing prices down to around $110 a barrel from above $147 per barrel reached in July.

[Arthur Denton]

From BBC:

Oil prices have risen to $104 a barrel in Asian trade, reversing earlier losses, after OPEC agreed to return to its late 2007 production levels.

After talks in Vienna, Opec president Chakib Khelil said the measures to curb over-production amounted to a cut of 520,000 barrels a day within 40 days.

The October US light crude future was up about $1 to $104.20 a barrel after earlier tumbling to near $102.

Prices have sunk from a record of more than $147 a barrel seen in July.

On Tuesday Brent crude had dropped beneath $100 a barrel for the first time since April, and crude prices remain close to $100, below which Goldman Sachs said earlier this week could signal a global recession.

The fall from the record prices in July has helped the US dollar, which hit an 13-month high against the euro on Tuesday.

Supply question

The price has since fallen by nearly 30% as a global economic slowdown has reduced demand for oil.

Supply has also been increased in recent months by some Opec members - principally Saudi Arabia.

Meanwhile, Indonesia has suspended its membership of Opec.


Actions [to curb output] will be taken by members as soon as they can
Chakib Khelil, Algerian oil minister

Q&A: volatile oil prices

"The conference regretfully accepted the wish of Indonesia to suspend its full membership in the organisation and recorded its hope the country would be in a position to rejoin the organisation in the not too distant future," Opec said in a statement.

After the late-night talks in Vienna, the group announced it had decided to "strictly" comply to the production ceilings agreed in September last year, which amount to 28.8m barrels a day excluding Indonesia and Iraq.

It linked the falling price of oil to slowing economic growth, a stronger US dollar, easing geo-political tensions and greater supply.

"All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook," a statement said.

Output curbs

The effect of the measures will be a cut of about 520,000 barrels a day, according to Algerian Oil Minister Chakib Khelil, who chaired the meeting.

"Actions [to curb output] will be taken by members as soon as they can, that means in the next 40 days," he said.

Opec members will re-assess the situation when the meet again at the end of the year.

The BBC's Bethany Bell in the Austrian capital says the move is a compromise meant to avoid new turmoil in the oil markets, but it also reflects Opec's attempts to stop the recent falls in global prices.

http://news.bbc.co.uk/2/hi/business/7607508.stm

Can't interfere on the market?

[Francesca R]

Er, . . . when they say "risen to 104" [actually right now it is 103.23] and "reversing earlier losses" . . . please note this is a one-day move. For the (slightly) bigger picture, see below. And no, if they could meaningfully interfere in the market, why the drop from $145/bbl?

http://h1.ripway.com/FrancescaR/2008-09-10-brent.jpg

[Arthur Denton]

Yeah, Francesca, they just did that, yes, but the important thing here is: Once the prices got lower enough they just re organized and started to work as a team. :) As they always do.

[Francesca R]

OK so OPEC announcements are so influential for the oil price that they produced a 4% bounce (which, incidentally, has now halved since the price is back down at $102) lasting less than a day, in the midst of a 30% fall over the last two months. Wow colour me impressed at what an effective cartel that is.

[Arthur Denton]

OK so OPEC announcements are so influential for the oil price that they produced a 4% bounce (which, incidentally, has now halved since the price is back down at $102) lasting less than a day, in the midst of a 30% fall over the last two months. Wow colour me impressed at what an effective cartel that is.

I thought you could do better than mock. I shall come back to this thread, whenever I see news from OPEC. For better or worst.

[Francesca R]

Excuse me, but how can you be serious that this piece of evidence shows that "OPEC is a cartel"? It shows the opposite. I have already explained why OPEC is not a cartel and (for what this micro-news is--which is not much actually, since OPEC know their own limitations better than you do and would not be so foolish as to declare a floor of $100 under the oil price) this empirically supports that truth.

With respect, get over your indignation and consider whether it is possible to be wrong, and amenable to learning something. Or if you think I am wrong, argue for that.

[Arthur Denton]

Excuse me, but how can you be serious that this piece of evidence shows that "OPEC is a cartel"? It shows the opposite.

Where? When? They're coordinating efforts. Again. And right after the announcement, the price raised by two dollars a barrel.

Now, on your "final price is the only variable economic theory", you forgot to think about this:

http://i21.photobucket.com/albums/b294/LuisIMGB/ValorizaodoDlar.jpg

That is a graphic that shows the strenghtening of the US dollar, in comparison to the Brl Real. The US dollar has been growing strong lately.

The oil barrels are getting cheaper in nominal value yes, the real value changes are way smaller. Now, that's never important, just the final price on the fancy graphics people post. Duh! I forgot to mention I took another graph, on the Brent barrel price in the same time range:

http://i21.photobucket.com/albums/b294/LuisIMGB/DesvalorizaodoPetrleo.jpg

Oh! Look! they seem to talk to each other! Holy cheese, is there an indirect mathematical relation there? Jesus woo Christ! Now, dear, if you check out what happened in the last few days, you'll see that the dollar price has risen a LOT and an awful lot that is, due to the movements to save Fanni Mae and to the increasing announcements of recession in the UK, which made the Euro less interesting and solid than the dollar. Should I mention the pre-salt oil source found in Brazil, that opens a whole new set of opportunities for the market? The invitation we received from Iran to join OPEC? The lower risks of lack of oil thorough the world due to the possibility of exploration of oil in the US offshore?

You see, if you interpret things by the final numbers only, as you're doing, you won't get the picture. And yes, OPEC announced the cuts in productions, the prices raised by two dollars even with the relative price of dollar going up. You shouldn't work with prices only, Francesca, for the simple fact that nominal prices are weak comparison resources. Economy involves loads of Innuendo, and OPEC has politics and history on their side.

Now if it's about being rough, OPEC is still the organization with the biggest power over oil prices, respected even by the biggest consumer, the US, who could decide to do something about it and use other kinds of technology. If OPEC decides to stop production, all at once, due to a stupid conflict such as the US invading Iran, aside from bloody turbans we would have oil shortage everywhere, not because of Iran cutting the supply of fuel, but because of the OPEC and people like Chavez and Morales, who support OPEC and hold a very high amount of oil in their reserves. Also, OPEC goes against the US, it's a pretty decent propaganda against the American way of life. It does has monopolistic power enough to make SUCH a mess.

[bobrayner]

Now, on your "final price is the only variable economic theory", you forgot to think about this:

There's no need to put words in peoples mouths.

Oh! Look! they seem to talk to each other! Holy cheese, is there an indirect mathematical relation there? Jesus woo Christ! Now, dear, if you check out what happened in the last few days, you'll see that the dollar price has risen a LOT and an awful lot that is, due to the movements to save Fanni Mae and to the increasing announcements of recession in the UK, which made the Euro less interesting and solid than the dollar. Should I mention the pre-salt oil source found in Brazil, that opens a whole new set of opportunities for the market? The invitation we received from Iran to join OPEC? The lower risks of lack of oil thorough the world due to the possibility of exploration of oil in the US offshore?

Oh! Look! There are many factors that might affect oil prices! So, where's the cartel?

If OPEC decides to stop production, all at once, due to a stupid conflict such as the US invading Iran, aside from bloody turbans we would have oil shortage everywhere, not because of Iran cutting the supply of fuel, but because of the OPEC and people like Chavez and Morales, who support OPEC and hold a very high amount of oil in their reserves.

Yes; in the hypothetical situation that OPEC and associates started acting like a nasty cartel, then we could call it a nasty cartel. Also, if Godzilla started stomping over major cities then we could rightly complain about the giant lizard crisis.

But here and now in the real world, OPEC is not acting in concert like that, so I won't call it a cartel.

[Arthur Denton]

There's no need to put words in peoples mouths.


Where? Why? When? I can only see an outraged reaction over mockery. I dislike the way it was put, and I'm within my right to do so.

Oh! Look! There are many factors that might affect oil prices! So, where's the cartel?

Please read: http://news.bbc.co.uk/2/hi/business/7607508.stm , which I think explains pretty well.

Yes; in the hypothetical situation that OPEC and associates started acting like a nasty cartel, then we could call it a nasty cartel. Also, if Godzilla started stomping over major cities then we could rightly complain about the giant lizard crisis.

But here and now in the real world, OPEC is not acting in concert like that, so I won't call it a cartel.

According to Wikipedia:

Examples

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
Adam Smith, The Wealth of Nations, 1776

An example of a new international cartel is the one created by the members of the Asian Racing Federation and documented in the Good Neighbor Policy signed on September 1, 2003. Other well-known examples include:

* OPEC: As its name suggests, OPEC is organized by sovereign states. It cannot be held to antitrust enforcement in other jurisdictions by virtue of the doctrine of state immunity under public international law. However, members of the group do frequently break rank to increase production quotas.

According to Investopedia:

The best known example of a cartel is probably the Organization of Petroleum Exporting Countries (OPEC).

According to Merriam Webster, a definition:


Main Entry:
car·tel Listen to the pronunciation of cartel
Pronunciation:
\kär-ˈtel\
Function:
noun
Etymology:
French, letter of defiance, from Old Italian cartello, literally, placard, from carta leaf of paper — more at card
Date:
1692

1 : a written agreement between belligerent nations 2 : a combination of independent commercial or industrial enterprises designed to limit competition or fix prices 3 : a combination of political groups for common action


Quoting the BBC article (in another post in this same thread)

Output curbs

The effect of the measures will be a cut of about 520,000 barrels a day, according to Algerian Oil Minister Chakib Khelil, who chaired the meeting.

"Actions [to curb output] will be taken by members as soon as they can, that means in the next 40 days," he said.

Therefore, being "a combination of political groups for common action" and organized by sovereign states, and being an example of cartel, and attempting to organize themselves over the movements of economy, there's the Cartel.

[Francesca R]

Where? When? They're coordinating efforts. Again. And right after the announcement, the price raised by two dollars a barrel.1) As above. "Shock and awe" . . . .

The oil barrels are getting cheaper in nominal value yes, the real value changes are way smaller.

2) You are confusing what "nominal" versus "real" means. In a nominal/real context, real means "net of inflation". Guess what--the real oil price (net of oil price inflation) is unchanged from fifty years ago and longer.

3) Sorry to burst a bubble, but the US dollar price of oil is the only one that matters to OPEC. Take a look at which countries are members. The majority of them have exchange rates that are themselves pegged to the USD and their oil recepits (and thus sovereign FX reserves) are overwhelmingly in USD (leaving aside a one-time suggestion by the late Saddam Hussein to get Iraq's oil invoiced in EUR). The BRL price of oil is important to Brazil but it is not a desired OPEC policy lever. At all.

the fancy graphics people post. [ . . . ] Oh! Look! they seem to talk to each other! Holy cheese, is there an indirect mathematical relation there?4) You are on a sticky-wicket attemtping to argue causal relationships from a couple of three-month charts. Do you think I can perhaps find several dozen examples of three month periods when USDBRL went one way and the Brent spot price another?

Here is a different explanation for that relationship which better fits the facts: Brazil's economy is quite levered into oil (and other commodity) prices. When commodities experience a bull market--like in the last several years--Brazil does well, the BOVESPA roars, USDBRL strengthens (appreciating BRL) . . . . and when oil/commodities reverse, the reverse happens.

that the dollar price has risen a LOT and an awful lot that is, due to [ . . . ]5) I recommend you stop drilling yourself a hole. There's nothing down there.

[JonnyFive]

Down below $100 as of this morning. PRAISE JESUS!

[Francesca R]

You underestimate OPEC. The offspring of deity is no match for cartel power. Just wait . . .

[Arthur Denton]

4) You are on a sticky-wicket attemtping to argue causal relationships from a couple of three-month charts. Do you think I can perhaps find several dozen examples of three month periods when USDBRL went one way and the Brent spot price another?

Here is a different explanation for that relationship which better fits the facts: Brazil's economy is quite levered into oil (and other commodity) prices. When commodities experience a bull market--like in the last several years--Brazil does well, the BOVESPA roars, USDBRL strengthens (appreciating BRL) . . . . and when oil/commodities reverse, the reverse happens.

5) I recommend you stop drilling yourself a hole. There's nothing down there.

But please, enlighten me. This is the first economic debate with serious rage included that I get in years, I'm honestly delighted. Just don't be rash, show me your stuff. Maybe I'm not getting to my points because I'm rusty (long time away from the "market") but this has sparkled a huge interest on my part, and I'd like to see what you can show.

Despite that fact, or any fact you dig, OPEC is a cartel, though.

[Francesca R]

This is the first economic debate with serious rage included that I get in yearsHuh . . . .?

Despite that fact, or any fact you dig, OPEC is a cartel, though.Erm, that's not debate.

[Furi]

Down below $100 as of this morning. PRAISE JESUS!


Back above 100USD الله أكبر

[Francesca R]

The brent crude stuff traded on London's IPE isn't :)

[Gurdur]

.... Personally I believe it is the result of highly inelastic demand and supply, which in turn is influenced by the destruction of many rational incentives to develop oil resources, thanks to thugocratic government behaviour in many parts of the world. ....


Could you please explain and expand on just what you mean in that bolded section?

[Francesca R]

Could you please explain and expand on just what you mean in that bolded section?I don't have the time to make extensive notes on this--it is a vast subject. (Actually I suspect skeptigirl probably could, as I have read other posts of hers that cover some of it.)

I mean the prevalence of "resource nationalism", meaning (broadly) quite widespread political efforts to disrupt present and future oil supply in various national interests using non-market methods.

In other words, new oil reserves are increasingly located in regions that are unstable or governed by thugocrats (regimes that change their tune regarding thier respect of capitalist desiderata from year to year consistent with shoring up their own political security). Some such insecure producer-nations (Sudan, Chad, Venezuela) have tied up long term supply contracts with China in exchange for Chinese financial and military assistance. Other cases of thugocracy include Russia completing a virtual chokehold on oil and gas routes through to Europe with its antics in Georgia and its going after the BTC oil pipeline (http://en.wikipedia.org/wiki/Baku-Tbilisi-Ceyhan_pipeline), and its prior harrassing of BP in the TNK-BP joint venture (http://en.wikipedia.org/wiki/TNK-BP) and Hermitage Capital (http://en.wikipedia.org/wiki/William_Browder) (William Browder). Activities in the Niger Delta (http://ngm.nationalgeographic.com/2007/02/nigerian-oil/oneill-text) are another example. Elsewhere, established oil & gas companies invited to invest overseas by prior governments have had their assets confiscated and their contracts torn up (http://en.wikipedia.org/wiki/Bolivian_Gas_Conflict) by incoming nationalistic administrations (Bolivia). And in some cases contractors have apparently been abducted or killed. Even in Brazil, whose part-state-owned company Petrobras is actually a world leader, thanks in large part to a previous (Cardoso) government's decision to privatise 60% of its assets and open up the industry there to foreign firms, there is a debate in the Lula government to take back some state ownership (http://www.economist.com/world/americas/displaystory.cfm?story_id=12009864) of oil fields via the creation of a new government owned company.

So called "Big Oil" (the private sector of the business) has progressively lost influence and market share to various colours of state control, which all--in general--have less incentive and less ability to undertake complex investment in new exploration and new capacity. Therefore, the risk premium being demanded from established oil companies (who are the ones in possession of the managerial and technical know-how that is required to undertake the very long term investments needed to secure large new oil discoveries) is excessively high.

NOTE: I am not trying to paint private oil concerns as "saints"--but personally I believe they are more capable and the better entities to develop oil than are most of the aforementioned state entities, and it is substantially more in the interests of world society for this to happen in accordance with adequately regulated profit-seeking market-driven resource allocation, not conflicting and aggressive diktat on the part of state powers sitting in the proximity of proven and unproven reserves.

I can't supply evidence links for all of the above (should you not agree on its veracity) since it is from a number of diverse sources, not all of which I have to hand, and that which I do I am prevented by copyright from sharing.

[JonnyFive]

Back above 100USD الله أكبر

Damn it... Jesus, are you going to take that crap? You get over there and kick OPEC's ass right this minute!

U S A! U S A! NEVER FORGET!