For those who missed Econ 101 in college, most of the reading and lectures were about supply and demand. Prices go up when demand out-paces supply. The theory still works.
But, the ministers of OPEC don’t believe that the markets work that way. If they increase oil supply, oil prices will not fall. Algeria’s Energy and Mines Minister Chakib Khelil said "If we increase, we are going to have the same phenomenon that happened before, which means it may not even impact on the price," according to a report from Reuters.
The ministers know that even a hint of supply increase would probably drop oil prices per barrel by $5. They have watched it happen too many times before.
Demand is higher. Figures out of big oil consuming nations like the US and China prove that. News on oil supplies in the US is likely to show that reserves are down. And, the winter is coming.
The not-so-hidden message from OPEC is that the West and China need to keep supply and demand in line for years to come by not over-developing alternative energies like nuclear power and bio-fuels. If there is evidence of a pull-back on those fronts, oil should start to flow again.
OPEC’s supply and demand is not like everyone else’s. It takes a look at the markets in 2030 and wants to make sure that demand is high then. The current markets can be damned.
Douglas A. McIntyre
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