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85 comments on What should OPEC do?
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85 comments on What should OPEC do?
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Phil, I think this appears crazy because we are conditioned to believe in free markets. However, when you think about it, what is the difference between fixing production quotas and allowing price to adjust and fixing price and allowing the production quota to adjust?
The main difference that I can see is that fixing minimum price will actually deliver the target price and a greater modicum of price stability and remove some of the margin available to speculators. The futures market may still operate - based more on bets of future OPEC price adjustments than future production quota adjustments.
I agree that going to $75 in one step may be too risky and unwise. Maybe $60 in the first instance would allow OPEC to see what their production quota would be at that price.
It's worth noting that "the price the World can afford" is not constant and will vary according to economic activity and growth (economic and population).
No doubt someone will show up and shoot this down as a BSC scheme.
Opportunity is lost/slipping away. The consuming countries should raise taxes and fees and set a floor under prices. Diverting cash flow from end users away from OPEC toward their governments where it can be invested in energy conservation and renewables would be good policy on its face. It would have OPEC reacting to our policy rather than the other way around.
OPEC has a problem with members cheating. With economies in producing countries faltering due to less revenue the incentive for them to 'pump and dump' as much oil as possible onto the market becomes very strong.
http://www.wtrg.com/opecshare.html
Another 'chance of a lifetime', just sitting there, waiting for someone to show some initiative and courage. Obama? Do you have the guts to raise gas prices to $4-6 dollars a gallon? People would hate you ... but you would be doing the right thing for once. It would put a much greater world of hurt onto OPEC ... and buy some time for a transition out of petroleum.
????
SoV: Right, right, right. This is our (USA's) chance to raise gasoline taxes; I suggest 60 cents a year for seven years. And a $7,000 rebate for PHEVs. That would crush the cartel forever.
We could balance it by sharp cuts in personal and corporate income taxes.
A great time to do it: Oil is going to be cheap for five to 10 years. I think we see excess global supply of 8-10 mbd in 2009-10, and slowing shrinking down from there.
Oddly enough, if we actually passed the gas tax-PHEV subsidy plan, it might make oil cheap for 20 years or more, thus undermining popular support for such a tax and PHEV subsidy.
The R-party would go on one of their "cut taxes and hand me the baby bottle" rants.
I hope the D-Party and BOH have the guts to sharply raise gasoline taxes now. I doubt they do.
Steve - I agree entirely but wonder if you don't mean that USA should raise taxes towards parity with Europe and Japan. It is a no-brainer, reduce consumption / imports and improve trade and budget deficits at the same time. Legislation on ensuring that efficiency gains get delivered as better consumption and not heavier vehicles is also required.
Euan, if the United States government raised taxes on gasoline by fifteen cents a gallon, I would take a crap in my pants!
Obama quietly shelved the oil- profits tax last week ... BAM!! BAM!! BAM!! (Head against wall ... )
http://www.reuters.com/article/vcCandidateFeed2/idUSTRE4B206W20081203
What if we had a magic engine which could replace all the engines in every car and truck in America and we could make the switch in just a few years? This engine meant we no longer needed liquid fuel since it ran on unobtainium. The price of unobtainium is the equivalent of $5/gal. What would happen to the price of crude in this situation? Someone pointed out that every 1% drop in demand caused a 15% drop in price. America not using oil means a 25% drop in demand so the price would be slightly higher than pumping costs. People would scream we are throwing away money by buying unobtainium instead of cheap oil. This is why our investments in alternatives and efficiency should not be dependent on the price of oil or any other fossil fuel. We should make these investments because it is the morally right thing to do. It is in our national security interests to make these investments. Eventually oil will become so rare that it will cost too much to use it as fuel. We should be prepared for that eventuality well in advance.
By itself, this is an irrational assumption. Surely there is a supply curve for unobtainium, and $5/gal-of-gas-equivalent is one point on that curve. Now what is the supply elasticity of unobtainium? The answer to "What if we had ... " depends on a lot of extra uncontrained assumptions and could be anything.
If instead of unobtainium, we speculate about synthetic gasoline that is made from biomass via the Fischer-Tropsch Process, I think the scenario is something like this: The current situation is that synthetic gasoline can not be made at a price that competes with real petroleum based gasoline. Over time scarcity rent on petroleum will rise. Eventually, it will make sense for some FT plants to bring synthetic gasoline to market. The synthetic gasoline will gain market share and the scarcity rent portion of real gasoline price will decrease until there is a stable balance or until there starts to be a scarcity rent on the feed stock for synthetic gasoline. The market share for real and synthetic gasoline will be driven by the relative scarcity of the two different feed stocks: biomass and petroleum. The world will be such a different place from what it is now that I think it is useless to speculate on this market share.
This kind of speculation can be extended to a second substitute for gasoline. It will enter the marketplace when scarcity rents on real and synthetic from FT allow a profit from making it at market price. And also for a forth kind, and a fifth kind, etc. This progression of substitutes must end before the Earth becomes so overloaded that it can no longer support life.
My key point is that we should make investments alternatives to fossil fuels no mater what the price difference is. Which alternative to invest the most in should be decided on according to its cost relative to the other alternatives and on net energy factors and not relative to the cost of fossil fuels. As the use of alternatives increases the demand for fossil fuels will fall eventually to near zero. At this point increases in the price of oil, coal, and nat gas also drive up the cost of alternatives. There will never be an extended time when alternatives will cost less than FFs. There may be short periods of a few months to a year when alternatives appear to have the advantage but as the FF price changes work through to other commodities then advantage evaporates.
Where were all you high price proponents when oil was $147.00 per and gas was $4.50? A few months ago I did not see any of you cheering Exxon for their Eco-Ethics founded in raising the price of go juice for your Hummer to a point where people where actually thinking about investing in "renewables".
It seems your only problem with last summer's prices was that the people that own the crude and the people that work hard to get it out of the ground and into the tank at your neighborhood gas station where getting the money rather than your deadbeat buddies.
How many of you go to work, I mean real work, for free every day? Why should I? I'd like a Lexus LX Hybrid. Which one of you is going to mail me the title and ship me the car for free? That is what you are proposing that Mineral Owners do with the Crude Oil they own.
By the way, all the 'renewables' you like so much will cost more like $10-$12 per gallon equivalent by the time they get to your drive way. On top of that you can drive 40 miles then charge up for 6 or 8 hours for the next 40 miles. You'll love that! Then maybe you're like the accounting intern from New Jersey who flew into Dallas and took a taxi to Midland (check a map, its Texas), or maybe you're the Israeli tour group that was touring in Seattle and wanted to catch the Grand Canyon on the day they had before their flight back to Israel. If so you might like the idea of European solutions.
Then there is always ethanol. Replacing 10% of the gas on the road will only kill 10,000 0r 20,000 people a day through starvation due to the fact that they will no longer be able to afford food. You probably think the worst thing about Darfur is that it isn't coming out of Exxon's pocket.