The price of oil is not going down to its equilibrium price any time soon, even if it declines temporarily from its recent stratospheric levels. The equilibrium best-case price for new global oil export volumes is now nearing $30 a barrel, much higher from the price professed by OPEC-$22 to $28 band. This is nothing short of ridiculous, considering what happened in the last few years.
Once oil prices surpassed the psychological barrier of $40 per barrel last summer the proverbial "toothpaste came out of the tube". It took little time to go over $50 and then over $55.
One of the reasons was that OPEC's inability became evident to everyone. OPEC has been rendered virtually impotent to influence oil prices in a big way and will be further reduced as the world continues its transition toward natural gas and coal gasification.
Several OPEC countries can barely meet their quotas, others such as Venezuela are way off and getting worse. High oil prices may prompt small family-owned companies of West Texas and Oklahoma to produce more oil. This does not necessarily mean that OPEC countries will follow suit, where corruption is endemic and revenues are funneled to support social welfare programs that bolster the reigning government's fortunes with the populace. |
