[ Monday ]
Oil Is Still Overpriced
--
At the beginning of 2004, the benchmark for Brent crude per barrel was $30 USD. Today, there is some rejoicing that the price has dropped in the past month and is now around $65 USD per barrel. The facts clearly indicate that the rise is oil prices over the past 2 1/2 years has been due to speculation in the trading markets.
--
So what is the real market value of a barrel of oil? As an economist, I would say that supply and demand help determine the true market price of any item...whatever the seller is willing to pay to the buyer. But that applies when there are no artificial influences in the marketplace.
--
Before there was a Hurricane Katrina in the late summer of 2005, prices had already risen to more than $50 per barrel. The price band adopted by OPEC in 2000 had a range of $22 to $28 per barrel. But prices had risen due to a shortage in refining capacity, pipeline and delivery problems, and even the restrictions placed on single hull supertankers by governments worldwide. As oil traders and futures markets speculated on rising prices, every minor conflict in the world helped fuel their bullish forecasts. OPEC knew that at a certain price point, alternative fuels could be attractive and in turn, hurt the long-term prospects for their member countries. They raised their output in an attempt to slow inflation and stabilize the oil markets. In their opinion, however, $60-$70 per barrel is reasonable. But the facts do not substantiate their views.
MM [12:28]
![[Link to THOMAS Home Page]](http://thomas.loc.gov/images/link.gif)
