OK, so Gordon Brown is sounding off about OPEC now, telling them it's outrageous that they're thinking of cutting production so as to bump prices up by means of the supply/demand curve effect at a time of incipient global recession.
It's pretty obvious why he'd say that. Also pretty obvious why OPEC might want to ignore him.
I'm interested, though, in the economic strategy considerations for an oil-exporting nation. Seems to me:
- other things being equal, restricting supply to maximise price now makes sense for them
- there's a slightly offsetting point that if high prices kill off their industrial customers, that reduces demand which depresses prices as well as volumes, leading to a lower rate of revenue flow for oil exporters
- but, and here's the point that I'm surprised people don't give more weight to, surely it's in an oil-exporter's interests to reduce its rate of oil-exporting (subject only to having enough revenue to meet its current needs and any infrastructure spend it thinks worthwhile), REGARDLESS of whether or not other oil-exporters can be persuaded to join in in cartel-like fashion and so bump up prices now. My point is that oil is finite and rapidly dwindling resource. by some point in the future, the exporters will have sold ALL their economically extactable oil reserves. It's not as if they can somehow manage to sell more in TOTAL by selling more NOW. Surely it makes sense for them to push as much of the sales back to future years/decades when the shortages are more acute and prices therefore far higher than now? And it's not as if biggest oil exporters (Gulf region) are exactly strapped for cash. So why aren't they tightening the taps more?
Incidentally, it strikes me that would help the west as higher prices now would make alternative energy R&D more profitable and hence more active and so lessen the eventual shock for which we are so ill-prepared.
It's pretty obvious why he'd say that. Also pretty obvious why OPEC might want to ignore him.
I'm interested, though, in the economic strategy considerations for an oil-exporting nation. Seems to me:
- other things being equal, restricting supply to maximise price now makes sense for them
- there's a slightly offsetting point that if high prices kill off their industrial customers, that reduces demand which depresses prices as well as volumes, leading to a lower rate of revenue flow for oil exporters
- but, and here's the point that I'm surprised people don't give more weight to, surely it's in an oil-exporter's interests to reduce its rate of oil-exporting (subject only to having enough revenue to meet its current needs and any infrastructure spend it thinks worthwhile), REGARDLESS of whether or not other oil-exporters can be persuaded to join in in cartel-like fashion and so bump up prices now. My point is that oil is finite and rapidly dwindling resource. by some point in the future, the exporters will have sold ALL their economically extactable oil reserves. It's not as if they can somehow manage to sell more in TOTAL by selling more NOW. Surely it makes sense for them to push as much of the sales back to future years/decades when the shortages are more acute and prices therefore far higher than now? And it's not as if biggest oil exporters (Gulf region) are exactly strapped for cash. So why aren't they tightening the taps more?
Incidentally, it strikes me that would help the west as higher prices now would make alternative energy R&D more profitable and hence more active and so lessen the eventual shock for which we are so ill-prepared.
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