Friday, June 20, 2008


OPEC President Nixes Production Increase

Here ( we read that OPEC president Chakib Khelil says it makes no sense for OPEC to increase production just to cool oil prices. Well, he is right about that. In fact, at a time when the world has to learn now to make do with progressively less oil, it would make sense to gradually decrease oil production (which will come in due time, you can be assured). So although I suspect the main reason behind the disinclination to increase production is the dearth of spare capacity, I applaud any decision by oil producers to hold the line, because raising production would just have the same effect as giving a junkie more drugs.

There is also some of the usual bogus reasoning here, no doubt used to cover up the lack of spare capacity.
Khelil said that just because computer or car prices were high, “would one ask their producers to make more?”, insisting again that oil was being driven higher by factors other than supply alone -- most notably speculation and a falling dollar.
First, if we needed a lot more computers or cars for some reason, we would likely ask for a production increase. There just happens to be no perceived shortage of these. And he also blames speculation and the cheap dollar, those old standbys. Anyone who looks at the figures, however, can clearly see the tight supply-demand situation. If supply is barely keeping up with demand, and demand additionally shows signs of further expansion, then the price of the commodity is going to go up. It’s Econ 101. People pay high prices because they have no choice. Oil is needed to keep the global economy going, and there’s no substitute. Herein lies the basic reason for high prices.

So, the best thing now is to stop asking producers to raise production, and instead start thinking of ways to quickly remodel our socioeconomic systems so we can get by on less oil with each passing year.

But I guess I won’t count on that.

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