The Oil Drum

I don't know why I seem to be responding to your comments so often, Bob; maybe you say things that I'm interested in...

82% of the oil production in the world is by national oil companies rather than multi-national companies, and as we import about 1/4th of our gasoline and some national oil has refining in the US and about half of the refining is by companies without production or marketing of their own,a very small part of the US market are in what I think you are calling oligopolies .

I am curious about how much of the infrastructure of these 82% national companies is really built and maintained by branches of the IOC's. I also wonder how much of the oil handling is done by the IOC's for those national interests, but not in name. In other words, how much of the '82% national oil companies' is in name only? How many people are really making decisions about poking holes or opening valves? Are the IOC's really proportional in their influence, or do the talking heads making recommendations get all their information from IOC representatives, then the Wall St. representatives and boardrooms of the NOC's take their cues from these ("Exxon's not drilling, why should we?")?
This is critical when making evaluations of the influences which 'control' the flow of oil and the flow of cash from oil. If most of the oil money ends up plastered around in the offices of Wall Street when all is said and done, then calling the Kettle a "Black Oligopoly" might be appropriate. It doesn't mean that the prices are 'controlled', but perhaps the System which we think of as competitive is simply part of a much larger System of Systems which has taken on a life of its own that has no decency for the living world that created it (RE: Collective Corporate Charter Mores).
The Blue Pill may simply be the illusion that we can put the genie back in the bottle at any time before the market 'clears'.

The problems are twofold.

First, the bivariate relationships are not linear, but are usually shown that way for simplification. If anything, they are asymptotic S-curves. So, if you took 1MB, 2MB, or 5MB out of the system, you would not get a 1:1 price reduction for each of those, but some other larger logarithmic factor.

Worse, the concepts "supply" and "demand" hide a lot of other concepts that are endogenous to them. Most of those terms are "informational," but they also have myriad causes in their variation, which sometimes take a lot of time to get sorted out, reflecting an imperfect price signal.

Since we live in an imperfect information environment, sometimes the market does not function as it should...

Economics works under a certain set of assumptions. Criticize the assumptions and imperfections of the model? Sure, absolutely.

But understand that there are some insights to be gleaned as well.

Mathematical equations for supply and demand curves, while they exist, would be pointless and impossible to create. For example, the demand curve for oil is the sum of every single person on the planets personal demand curves, so we are easily talking about trillion+ variable equations assuming each of our personal demand curve has only a limited number of variables. Secondly...such an equation would be out of date instantaneously.... as they are continuously changing. With physics or chemistry you can take a formula, plug in your known variables, and with great precision predict what the value of the unknown variable will be should you carry out the experiment. If you expect that out of economics, then you will be disappointed, as many on this thread seem to be. Economics can not be that precise simply because it is too complicated... way too many variables to forecast reliably or accurately. But that doesn't mean economics is useless. It allows us to create logical, simplified models that can reveal trends and give us insight. For example, one logical insight from the supply curve is that higher prices will encourage suppliers to produce more, with an important qualifier.... "all else being equal." As we know, all else is not equal, and that geological and political constraints will ultimately trump higher prices. The supply/demand curve, with it's two axis simply can't model this, it's a simple model with two variables....price, and quantity demanded. Clearly there are limits to economic models...the primary limiting factor being the human mind. People here are often quick to blame sub-optimal outcomes on free markets when the blame actually rests with sub-optimal human decision making.