From: Lee Corbin (lcorbin@tsoft.com)
Date: Tue Jan 28 2003 - 21:05:21 MST
Robert writes
> > > > Oil prices in a free Iraq world would be around $10/bbl.
> > > > They are currently around $30/bbl, partly due to the
> > > > restriction on Iraqi oil exports, partly on the Venezuelan
> > > > civil conflict (which can also be traced to left wing
> > > > organizations), and partly on global uncertainty over
> > > > future US actions in Iraq.
>
> Mike/Lee I simply cannot accept this premise (sorry).
>
> ...
> The price of oil is subject to a complex "present value
> analysis" of both the countries producing it and the
> consumers. It comes down to a question of "do I gain
> more by pumping the oil or leaving it in the ground?".
Who ever gains more by leaving it the ground? (Besides
U.S. farmers, I mean.)
> You have to assume that (a) the U.S. (or Europe) would
> act to pump-up-the volume with respect to Iraqi oil
> production (and there is no useful knowledge with
> respect to the degree they could do that given a
> decade of decay in the production capabilities) and
> that the (b) the Saudis (or other OPEC or even non-OPEC
> members) would not act in a way to offset the production
> increase that Iraq *might* be able to achieve.
What? If we assume that Iraqi oil production goes up,
then you are saying that this would be offset by other
countries *lowering* their production? Leaving all the
profits to Iraq? That's not how markets work. Unless
they achieve a cartel, it forces down the world market
price of oil, right?
> Yes, there are disruptions, e.g. Venezuela or perhaps
> pipelines being blown up (or not built due to political
> problems), etc. But you are living in a fantasy world
> if you think most oil producing nations are going to
> pump oil at $10/bbl). They *know* the supply will
> eventually decline.
Yes, and as the resource "eventually" runs out, the price
indeed goes up. But it goes up in accordance with the
laws of supply and demand. Don't you acknowledge that
the Saudis and everyone else are trying to make as much
money as they can?
> They are also in primarily state run companies that are
> not subject to the quarterly dictates of Wall Street.
;-) Is that what you call the law of supply and demand?
> So their focus is on "how do I preserve my job?". And
> that is very different in each political situation.
Yes, but the rulers want the $$$$$.
> So I would suggest that if you think every oil minister
> will continue to do exactly what they are doing now if
> Iraq bumps its production from say 2M to 4M BBL (these
> are hypothetical numbers which one would need to verify)
> then you are living in fantasy land.
Why, no. Of course they'll have to change their behavior.
They'll either have to lower their price or sell less.
Lee
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