LoneSnark
All American
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I originally believed the price of gasoline would return quickly to sub-$2 territory before 2007, but it turns out OPEC has forgotten its own history. I guess this is rational, it has been a generation since the 1980s, so it should be time to re-learn.
OPEC does not fail to secure it's price floor, the problem is how it does it. As prices remain high, western oil companies scower the planet for more oil and western consumers learn to use less of it. So, as time passes, western consumption falls and western production rises, so imports from OPEC fall precipitously. After awhile this begins impoverishing OPEC countries. As their finances deteriorate, the urge to export more than their quota becomes undeniable. So, now, overall exports continue to fall, prices are falling, and each cartel member feels betrayed. Finally, with its fellow cartel members ignoring quotas, thus forcing Saudi Arabia to export even less oil to maintain the price floor, it becomes clear to the Saudi leadership that if they try to maintain the current course Saudi Arabia will simply stop exporting oil within a decade or so.
So, as occurred in 1986, Saudi Arabia picks a new lower price floor, bankrupting its fellow cartel members and western oil companies. As a result, western consumers begin using more oil and western companies completely stop searching for any more oil, OPEC exports explode. After awhile, OPEC is wealthy again, making up in volume what used to be made in price.
Well, here we are, 28 years after OPEC's last attempt at a high price floor ($30/barrel), and 20 years after OPEC gave up on its high price floor, and now we've got a new high price floor ($60/barrel). Let's see how long this one will last...
http://www.wtrg.com/oil_graphs/PAPRPOP.gif
[Edited on December 18, 2006 at 6:14 PM. Reason : .,.]  12/18/2006 6:14:15 PM
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