OPEC to make sure oil does not go below $100/bl = airlines will never be profitable?

[FastJP4]

I look foward to, and hope I'm around to see the world get off their collective a$$'s and employ enough other technologies to render oil to the backstage of necessities. There is nothing more that I would like to see these countries that live and die on oil - well.........................................I think you get the idea.

 

[Clacker]

(pushes glasses up on nose) Anyone remember their econ class in college?

With regard to the supply & demand of oil, and OPECs role in this, it helps to know just how OPEC is able to control pricing through production and why it doesn't always work.

(cut/pasted from cliffnotes, italics added):

"Cartel Theory of Oligopoly
A cartel is defined as a group of firms that gets together to make output and price decisions. The conditions that give rise to an oligopolistic market are also conducive to the formation of a cartel; in particular, cartels tend to arise in markets where there are few firms and each firm has a significant share of the market. In the U.S., cartels are illegal; however, internationally, there are no restrictions on cartel formation. The organization of petroleum-exporting countries (OPEC) is perhaps the best-known example of an international cartel; OPEC members meet regularly to decide how much oil each member of the cartel will be allowed to produce.

Oligopolistic firms join a cartel to increase their market power, and members work together to determine jointly the level of output that each member will produce and/or the price that each member will charge. By working together, the cartel members are able to behave like a monopolist.

Once established, cartels are difficult to maintain. The problem is that cartel members will be tempted to cheat on their agreement to limit production. By producing more output than it has agreed to produce, a cartel member can increase its share of the cartel's profits. Hence, there is a built-in incentive for each cartel member to cheat. Of course, if all members cheated, the cartel would cease to earn monopoly profits, and there would no longer be any incentive for firms to remain in the cartel. The cheating problem has plagued the OPEC cartel as well as other cartels and perhaps explains why so few cartels exist."

 

[Smarta$$]

Wait OPEC is controlling the price of oil, I thought it was speculators? Can we just pick one bad guy to demonize and stick with it?

Well, although oil has declined 30% in the last few months, I know demand has not declined 30%. Nor has supply increased 30%. I am also sure that the dollar is not 30% stronger. Acombination of things? Sure. But speculation is/was a big part of it.

Now the discussion of OPEC is one of a future meeting and has not been reflected in the recent decline. Are you keeping up?

And, imagine a 30% decline in price without an increase in drilling. I guess the republicans telling us that drilling is the only answer are wrong.

 

[HalinTexas]

Well, although oil has declined 30% in the last few months, I know demand has not declined 30%. Nor has supply increased 30%. I am also sure that the dollar is not 30% stronger. Acombination of things? Sure. But speculation is/was a big part of it.

Now the discussion of OPEC is one of a future meeting and has not been reflected in the recent decline. Are you keeping up?

And, imagine a 30% decline in price without an increase in drilling. I guess the republicans telling us that drilling is the only answer are wrong.

Remember, with that decline someone (many) lost a lot of money because they bought futures at $130+.

This is turning into a political argument and away from an economic one. There was more than one pundit that said oil would come down after the Olympics. Yes, there is OPEC with their influence, there are speculator; and there's also the market, which the speculators plan. If people are buying less oil, the price comes down. Asia is slowing its growth and they are driving less over there as well. Read the WSJ once in a while. Read the whole thing, not just the comics.

 

[atpcliff]

Hi!

What's the problem with "Drilling"???

First of all, what do U mean by "Drilling"???

If, drilling you mean drilling in a US domestic location that is shallow, easy to access, and easy to get the oil out of, then drilling is a great idea.

The "harder" (technologically, economically, and the longer it will take to develop an oil field, and the harder it will be to move that oil to a refinery) it is to drill, the less sense it makes.

If by "Drilling" you mean in an off-shore location, with a total depth (water and land) of 35,000', with a lead time of 10+ years, and ENORMOUS cost to deliver the oil to market, then it makes NO sense at all.

Why does it not make sense to drill for expensive, long-term (5-10 years+ for the oil to come on line) oil?

Because all those resources: Dollars, personnel, natural resources to make the drilling equipment/oil deliver equipment, etc., would be better used to develop a RENEWABLE energy source.

If we spend $100m and 5 years to get oil production started out of one well, we will pump out the oil and it will end.

If we used the same $100m and 5 years to develop a RENEWABLE energy source, then America (and our Allies) will have energy, basically, FOREVER, with minimal pollution.

If the energy source you are promoting will not deliver energy 100 years from now, it is worthless as a long-term goal.

Drilling cheaply and quickly is a good idea.

Also, NUCLEAR plants are desperately needed to tide us over in the change from Oil to RENEWABLE fuels.

France is kicking our ass in Nuclear energy. Nice!

cliff
YIP

 

[rtmcfi]

Is it the environmental impact? That's hypocritical if we're talking about a global energy source, what, let others do it over there but not in my backyard? How arrogant. Seriously, what is the problem with drilling?

Do you have garbage service, or use a landfill? If so, you are an arrogant hypocrite.

 

[febtober]

to continue with clackers economic explanation, opec is a cartel and thus has a great deal of control over oil SUPPLY.
this gives them the ability to adjust prices by changing production. more production means that price will drop, less and it will go up.

The worlds oil consumers, whether they are airplanes, cars, ships, factories or even SPECULATORS control oil demand. Their willingness to pay for oil controls the price of oil as well. These groups have the ability to adjust prices by paying for oil at 140 per barrel (like the speculators were doing) and therefore raising price. They can also reducing their use of oil (such as american drivers who drastically reduced driving this summer) which would then lower cost.

For an easy to understand analogy the supply and demand graph for any product looks exactly like a drag graph for an airplane.

The axes of the graph are vertical for price and horizontal for quantity. Demand is a downward sloping curve just like an induced drag curve. Supply is an upward sloping curve exactly like a parasitic drag curve.

where the 2 lines meet is the current price and quantity. in order to see what a given action will do to price you move one curve and leave the other stationary resulting in a new price and quantity.

Obviously all the factors involved in the world oil economy make this slightly more complicated but the basic principle will does not change.

 

[CoolSidePillow]

So Hybrids are the answer but drilling isn't? That's ridiculous. Drilling can help for 2 reasons, one is that it increases the percentage of our oil going to the world market, making us a larger factor in the demand equation, two it keeps more money 'in house' lessening the overall impact of our reliance on foreign sources. Yes, OPEC may cut production to keep the overall supply the same, but again, our increases change the dynamics completely. Far more than a few hundred thousand hybrids taking to the road. But as most people realize, there are many parts to this equation. Why take something completely off the blocks when a combination of strategies will be more effective. More hybrids, more drilling, more wind, more nukes, etc.

If you can name ONE SINGLE reason why drilling more is bad, I'd love to hear it... Is it the environmental impact? That's hypocritical if we're talking about a global energy source, what, let others do it over there but not in my backyard? How arrogant. Seriously, what is the problem with drilling?

Drilling is bad because it lessens oil companies' ability to control price and make money. That is why when the republicans controlled both white house and congress they did not remove the ban. It is like telling farmers to grow more. It reduces the price of crops. Oil companies LIKE not drilling. They made tons of money in this fiasco. If anyone thinks that ANY politician cares about any people other than their corporate masters is an idiot. Anything that is good for the people will certainly not happen. Remember the wealthy elite mantra. "We cannot have everything if everyone else has something"

 

[jmreii]

Pipe is right, the airlines have never been profitable before, why worry now about being profitable!