Does oil obey the laws of supply and demand?

Question: Does oil obey the laws of supply and demand?

Robert Bryce: Well that is a good question, curtails have always been a key issue in the oil business. The Texas Railroad Commission for more than 40 years control the price of oil globally and it was in fact cartel operated out of Austin, Texas. They set the limits on the state of Texas, the producers in the state of Texas and told them how much oil they could produce and there by they control the price by controlling the supply they control the  price today we have OPEC and OPEC is in name it is a cartel, is it still functioning like a cartel I think that is an open question. Cartels have to have the ability to move the price both up and down and we have it seen OPEC I have any desire or I think have any capacity to move the price down and so there is a question whether in fact OPEC is still is able to act effectively as a cartel because they don’t have any spare production to bring in to the market. If they had spare production to bring in to the market they could price, force the price down and which would be good for the US and another consumers but I think it is an open question to in fact whether they have any hope any excess production that they get you in fact bring on the market. I think what has happened is the oil business has adopted to many other manufacturing business have done and that is they adopted adjusting time delivery system, it’s too expensive for oil companies to have an oil well that may have cost $10, $20, $30, a hundred million to drill and some of these new off shore oil wells, the jack well that was drilled in the gulf of Mexico huge discovery in the US waters in the gulf of Mexico cost a $100 million. They are not going to drill a well that is not expensive and not bring it in to production, so they are not going to let that money sit. So what we have seen is as the law as the sphere capacity global sphere capacity for oil production has declined prices have risen because the market realizes there is no spare capacity to bring in to the market and so I take the prices have reflected that uncertainty and numerous economists have written about that.

Date Recorded: 03/20/2008

What impact do cartels have on oil?

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