Oil at over 100 dollars a barrel is not a record price. Not only are dollars worth much less than they used to be in terms of other currencies including ours, they are worth even less in terms of the real goods that would have to be given up in order to afford oil. It is not just oil prices that threaten recession and inflation for, further, if price were the issue governments could well reduce their tax on oil, which exceeds producers' monopoly profit.
Over the price band of 100-120 dollars our demand is utterly inelastic and, quite possibly, beyond that band, although sooner or later there is a negative income effect impact, but we would be prepared to pay more as long as supply was there.
Only with competitive supply, with a lot more oil available at the going price, would supply be more elastic, but monopolist suppliers restrict output.
It is the security of supply, manipulated not just by geopolitical interests but real supplier fears, that should worry governments.
'Oil in the ground is better than money in the bank', said Sheik Yamani in the mid-'70s. The behaviour of banks and financial institutions resulting in the collapsing faith in the banking system isn't helping either.
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7 comments:
One of the problems is that the so-called oil market is no such thing - the vast majority of oil production passes through vertically integrated oil companies and goes nowhere near the market on which prices are quoted. As a result that market is much more driven by speculation than factors such as supply and demand. It is something of a disgrace - which is largely perpetuated by the major oil companies so that they can manage their transfer pricing and tax liabilities. Politicians who are prepared to take on the oil companies are pretty thin on the ground.
Politicians who are prepared to take on the oil companies are pretty thin on the ground.
Not a problem we have , you recall the North Sea windfall tax...
There is no limit to Gordon Brown's cack-handed actions derived from such imperfect understanding of the real world around him as opposed to his sought-after controlled Honecker-like utopia.
Only a Chancellor determined to damage investment and development funding of UK continental shelf oil resources for a short term tax in hand gain to fund his fantasies would have imposed the tax hits like those from 2005 on.
Resources need investment and time to be exploited, there is a requirement for a stable environment for investment and research into new fields as well as the further exploitation of older fields. These resources are too centrally important to be sacrificed to maintaining Labour's client state.
Is there nothing the man got right? Is there any financial, fiscal, economic or administrative activity in which he has not distinguished himself as a monumental and historic incompetent?
N, he will kill us all: from cold, from starvation, from disease, from underdevelopment, from wholesale personal venom towards anything that does not conform to his vision.
can't agree with Anon@11:18; vertical integration in the oil industry has broken down significantly over the past decade
Nick Drew may be correct that vertical integration has reduced significantly but it hasn't disappeared - but it has been replaced by an awful lot of bilateral deals between producers and refiners. The fact is that the proportion of total oil production that goes through the quoted markets for oil (and gas) is pretty low and those markets are very prone to speculative activity.
Re the windfall tax - it was pretty much a pinprick given the vast profits that the oil companies were earning in the UK - and public opinion would probably supported much more draconian taxes on the oil companies in the wake of the fuel protests. The oil companies were in fact petty pleased with what they got away with - and it didn't much affect their subsequent profitablity (if you don't believe read their annual reports - you won't see many complaint there about the windfall tax). As for the tax having an adverse impact on their investment plans - this really doesn't stand up - the oil companies have more cash than they know what to do with and investment has hardly slowed down.
Brown is, of course, a socialist at heart, HG.
Everything he does defies logic and obeys a petty hatred of independant thought.
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