OPEC and Russia Attempt To Raise Oil Prices

SEARCH BLOG: OIL

When the world perceived that the economy was growing, it was an easy task to get oil prices to increase on a daily basis. OPEC and Russia are pining for those days and hope to have them return by cutting oil production... you know reduce supply to increase demand... or something like that.

That's the corollary to the Democratic Party's policy on energy: prices go up because there is a dwindling supply; prices can't go down when there is an increased supply... so increasing supply is a waste of time.

Of course, the whole pricing based on the supply and demand relationship depends on a reasonably "normal" situation. In a severely damaged economy, the impact of decreasing oil supply is going to be similar to cutting interest rates from 1% to 0.25%... similar to pushing a rope. Growth pulls prices; contraction allows pricing freefall.

So, while reducing interests rates may have a temporary, nominal, positive effect on the economy, reducing oil supply will only countervail that impact and extend the economic malaise.

OPEC and Russia would be wise to wait this troubled period out rather than helping to extend it... unless, of course, that is their intention.

The Federal Reserve missed the opportunity to ameliorate the recession when it raised interest rates on the unfounded fear of inflation... large and rapid price increases were a function of oil costs which were self-limiting and self-defeating. The political process missed the opportunity to work with oil companies during the time of high prices to move toward greater U.S. supplies which has left the door open for more of this OPEC-Russia b.s.

Now we have a screwed up economy with the possibility of deflation and no additional control of our energy supplies... but we do have change blowing in the wind as we begin the journey to stop global warming which isn't occurring.

The political process is so good. It's all the fault of the automobile CEOs.

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