Financial War over Oil Reshapes World, Will End with Much Higher Prices
By Larry Kummer, Editor of the Fabius Maximus website:
Oil sell-off after OPEC makes even ECB look good. Better to have announced something, even if less than hoped for, than nothing at all… — tweeted by Capital Economics.
We have not begun a new era of low oil prices, fruits of new tech and a beneficent Fate. Low oil prices are the wreckage from a war – a financial war.
The verdict is in. Experts proclaim OPEC’s policies a failure. Here’s T. Homer Bonitsis, associate professor of finance at the New Jersey Institute of Technology:
OPEC is non-relevant in terms of its ability to affect the price of oil. So any decision by OPEC will not have a long-term effect on the oil market. There are too many OPEC quota-chiseler countries and non-OPEC production countries that cast a shadow over the effectiveness of OPEC maneuvers. … If history is any guide, there is a secular downward trend on real oil prices.
… The Saudi strategy of attempting to knock out competitors by using predatory pricing is not a game changer long-term … Some producers may shut down temporarily, but will reopen when prices recover again. Indeed, some producers may go bankrupt — only to have their assets sold at bargain prices. The new investors in these assets have a lower fixed cost structure to produce oil; in essence, creating a lower-cost competitor! The policy is doomed to failure long-term.”
This is an economist’s perspective: now is forever, economics is everything. It’s why they are so frequently astonished by events.
US oil production peaked in 1973 at 9.5 million b/day, a record that, despite exciting predictions, seems likely to stand for a while longer. Then the Saudi and Gulf princes used OPEC to take control of the world oil market (i.e., manage production to boost prices).
…click on the above link to read the rest of the article…
