Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Moominoid who wrote (23124)	9/1/2002 10:18:34 PM
From: Maurice Winn	Read Replies (1) of 74559

<As I am just writing in my class lecture notes the oil producers gain as demand for oil is inelastic (at least in the span of a few years). The question has always been getting their act together.> Hi David. The inelasticity works in both directions. If Saudi Arabia cuts production to get higher prices, that works for a while, though consumption immediately starts dropping and production shifts to competitors. After a few years after people have gone to other suppliers or switched to different technology, Saudi Arabia would decide that they didn't really want to leave their oil in the ground for 1000 years so they try to get customers back. That means a huge price reduction to try to boost demand again. But we won't just chuck our little fuel cell vehicle and dump our photovoltaic system [which has capital cost but no running cost]. So they'll have to really cut their prices to get their volumes up again. They are wacko to do other than export flat out and keep prices low, investing the proceeds in the Biotelecosmictechdot.com industries. Unfortunately, for them and us, they are wacko. Though perhaps King George II and related companies have a quiet word to them that it would be better if they kept production down, so Exxon, BP and others make good profits from the North Sea, North Slope etc and to ensure that Iraqi oil stays off the market. Economic sense dictates that the very low cost reservoirs, such as those in Saudi Arabia, should be used before the wild and expensive fields in Antarctica, the Arctic and high cost small fields producing small amounts in mainland USA. Political sense isn't the same as economic sense and those in charge invariably act to maximize their own profits, so more of the same is likely to continue = restrained Saudi production and managed OPEC production. Mqurice

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