Zeev's Turnips - No Politics Message Board

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Strategies & Market Trends : Zeev's Turnips - No Politics

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To: brightness00 who wrote (49438)	4/10/2002 8:53:55 AM
From: Psycho-Social	Read Replies (1) of 99280

Oil Pricing: You stated that oil should cost $2 a barrel, its cost of production in Arabia. I'm no economist, but I don't think commodity pricing works that way. I believe the "natural" price level is dictated more by the costs of the most expensive producer necessary to meet world demand, including taxes and exploration costs. Oil is cheaper today than it was 20 years ago. How many other commodities are? You're right about oil being just cheap enough to deter the development of alternative fuels - the substitution effect is basic to product pricing. Conclusion: no conspiracy theory is necessary to account for the pricing of oil. It's probably a freer market than some others, steel for instance. Don't forget, oil is not renewable, so it's irresponsible for a nation to squander its resource by selling it at low prices.

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