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May 19, 2006


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The Superfluous Man

But OPEC, and more broadly state-owned oil companies, could increase production if they contracted or sold their oil fields to private oil companies. Cesar Chavez fired many working the state oil company there. Production has not returned to that peak since. To what extent this raises the price of petrol, I do not know. Admittedly, if demand is low enough, this effect matters not. But it currently isn't low enough. Together with your estimate for the effect of geopolitical tensions, the non- supply and demand price component is sizable.


Everything the Saudi oil minister says should be followed by the phrase, "so keep buying those big SUVs."

"There is a 15% geopolitical premium. That could go away, so keep buying those big SUVs."

"It's due to a lack of refining capacity. Just build more refineries and keep buying those big SUVs."

Also, ummmmmmm, uhhhhhh, Superfluous Man. I, uhhhhhhh, think you might mean "Hugo" Chavez. I don't see how the deceased head of the United Farm Workers union would have the authority to fire "many woring the state oil company there."


It's nice


we don't see rising stockpiles of oil, nor do we see declining production.

If so, Sir, the market is balanced and the price is right and OPEC is right. Yet it is not only supply and demand. A perceived threat of war in the gulf increases insurance costs, oil is highly taxed everywhere, there is a lot of politics and so on. And a lot of speculative money trying to profit from the fears of the importing countries.

Zanshin Post

Big Mike asked: Are geopolitical tensions responsible for high oil prices?

Well, it is certainly the other way around: High oil prices create geopolitical tensions.

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About Big Mike

  • Big Mike has a BS in Economics from the Wharton School of the University of Pennsylvania, an MBA and JD from Arizona State University. He once worked as a stockbroker for six weeks.

    His politics blog is Half Sigma.

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