| Pump It Up |
17 February 2003
|
OPEC May Cut Gas Prices When War Comes
In the run up to the war on Iraq, higher prices for gasoline set in a couple of weeks ago. The concern among oil traders, oil companies, and the general public is that a war in the oil producing Mid-East will reduce supply increase prices. However, OPEC may actually step in to save the situation as the sabre rattling gives way to sabre thrusting.
The oil cartel has been a bogeyman of the west, and particularly of America, since it first flexed its muscles in the 1970s. OPEC erred, then, by boosting prices markedly and rapidly. The global recession that followed hurt the cartel's members, and they have since learned that a stable supply of oil with reliable revenues are in their best interests. Oil has ceased to be a weapon.
It is the nature of a cartel to set prices at an artificial level -- either higher or lower than a purely free market would set them. OPEC does not want to see oil at $50 a barrel anymore than its customers do. According to the market, when the attack on Iraq begins (one wishes the word "if" could be used instead), there will be a spike up in price. When the shooting is over, and the oil fields of Iraq haven't been destroyed, the price will drop.
OPEC, however, wants stability, and so one can expect supply increases in the run up to the fighting, and cut backs after. Naturally, the Venezuelan situation will have an impact, but OPEC will try to keep prices level. While this will prove impossible, the price swings will be lessened, thanks to our friend OPEC.