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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: kumar L chalasani who wrote (32859)	12/15/1998 8:10:00 PM
From: Tomas	Respond to of 95453

The fall of oil. Houston Chronicle, December 14 What's going on here? Well, every commodity has a story of its own. But there are some general lessons. Take oil. Someone needs to. The crash in oil prices has little to do with what happened back in the 1980s. Then, oil prices fell primarily because of a plot. The Reagan administration persuaded Saudi Arabia to flood the world with oil, driving down the prices. That was designed to bankrupt the Soviet Union, which was depending upon oil sales for foreign currency. And it did, hastening the crumbling of the Evil Empire. As a dandy byproduct, those lower prices provided a much-needed boost to the U.S. economy. Except, of course, for places like Houston where hundreds of thousands of people -- most of whom voted for Ronald Reagan -- were thrown out of work. This time the immediate cause of the oil price plunge was the slowdown of Asian economies. They had been consuming the surplus in oil production. Less economic activity in Asia, less demand for energy. Add to that localized consumption drops due to the current warm winter, and prices tanked. But in the long run, the lower price of oil also represents another truth. Cartels -- like the Organization of Petroleum Exporting Countries -- never can control the price long term. Someone always cheats. The longest-running successful cartel in the oil business was the Texas Railroad Commission. By setting production in what was then the world's largest producer -- the Texas oil fields -- the commission kept prices high enough to ensure industry health while low enough to make it economically foolish to come up with substitutes for oil. That power by the Texas governmental body ended when the state's share of the world oil production dropped.