Monopolies Think Long-Term

Friday, December 5, 2014

OPEC has traditionally cut its production when new sources of oil were added to the global total output. It has always been done to keep the world price of oil high.

Only once has OPEC chosen to overproduce oil in order to lower oil prices (in the late 1980's and early 1990s). The cheap oil hit Brazil's bold ethanol infrastructure investments hard, and put half the U.S. ethanol production facilities into bankruptcy.

In other words, it was a classic monopoly maneuver.

And for the second time, OPEC is doing it again. For a year now, against the expectations of the experts, OPEC has decided not to reduce its output even though Iran's oil has been added to the global total, and so has a new bonanza of American oil. Everyone seemed to expect that OPEC would do what it has always done: Cut its production to keep the price of oil high. But it has not.

OPEC is trying to kill off its competition.

The good news is that lower fuel prices are always good for the economy, so as long as fuel prices remain low, we can expect to see a significant economic uptick, as we did in the late 80s and early 90s. But we can also expect to see a drop in new oil investments and a drop in interest for fuels that could compete with oil.

When it has cleared the field of its competition, OPEC will raise the price of oil again and continue gouging the world.

If you'd like to see OPEC lose its power, if you want lower fuel prices permanently, and the healthy economy it always brings, never stop working toward fuel competition. Here's how.

Author: Adam Khan, the co-founder of and co-author of the book, Fill Your Tank With Freedom. 


Keep the Focus on Fuel Competition

Thursday, December 4, 2014

In an article in USA Today, Jonathan Fahey says the dropping gas price is so surprising, people are sharing photos of it. He writes about the reasons it's getting cheaper, and fails utterly to give the fundamental cause of the lower price, or what we might do to keep the prices low. Here are some excerpts from the article, starting with the reasons:

...demand isn't rising as fast as expected, drillers have learned to tap vast new sources of oil, particularly in the U.S., and crude continues to flow out of the Middle East.

Seasonal swings and other factors will likely send gas back over $3 sooner than drivers would like, but the U.S. is on track for the lowest annual average since 2010 — and the 2015 average is expected to be lower even still.

Oil fell from $107 a barrel in June to near $81 because there's a lot of supply and weak demand. U.S. output has increased 70 percent since 2008, and supplies from Iraq and Canada have also increased. At the same time, demand is weaker than expected because of a sluggish global economy.

In the past, a stronger economy in the U.S., the world's biggest consumer of oil and gasoline, typically meant rising fuel demand. No longer. Americans are driving more efficient vehicles and our driving habits are changing. Michael Sivak of the University of Michigan Transportation Research Institute calculates that the number of miles traveled per household and gallons of fuel consumed per household peaked in 2004.

The drop will save the U.S. economy $187 million a day, and also boost the profits of shippers, airlines, and any company that sends employees out on sales calls or for deliveries.

Whenever fuel prices drop, the economy does better. Five of the biggest airlines reported very strong quarterly earnings mostly because fuel prices have dropped 15% since September. When fuel is less expensive, almost everything becomes less expensive. That's one of the biggest selling points of the Open Fuel Standard. Right now, global commodity prices are falling around the world.

The real cause of the global drop in oil prices is an overabundance of oil on the market, caused by OPEC's surprising move to keep their production high regardless of new sources of oil on the market. Another way to describe the cause is that American oil producers are adding more oil to the market and OPEC is not responding the way it has traditionally responded (cutting its production to keep oil scarce and the price high).

Why do you suppose they haven't cut their production?

"At a recent oil industry event in London," writes anchorwoman Trish Regan, "OPEC's Secretary-general Abdullah al-Badri told reporters, 'If prices stay at $85, we will see a lot of investment going out of the market. About 65% of the producers, they have high costs. Not OPEC.'"

OPEC is playing monopoly with the world's economy. Once they've killed off interest in new oil investment, they can safely raise prices again.

If you'd like to end our vulnerability to OPEC's manipulations, keep working toward fuel competition while oil prices are low. There are many reasons to achieve fuel competition besides the economic ones, although those would be reasons enough. Here's a summary of why its worth fighting for: Fuel Competition Will Change The World.


Why Are Oil Prices Falling?

Saturday, November 15, 2014

"Oil prices need to stay above $85 a barrel in order for new fracking investment to be worthwhile," says anchorwoman Trish Regan.

Today's Brent Crude is $77.74 a barrel.

In USA Today, Regan writes, "Despite increasing tensions in the Middle East, the nationwide average for a gallon of gas stands below $3 for the first time in four years — a roughly 20% drop from June levels. And OPEC, the oil-producing group that controls an estimated 40% of world supply and aims to keep oil prices as high as it can, seems to be just fine with that."

The question is: Why?

Because that's what monopolies do when begin to face competition: Drop the price and try to put the competition out of business. Oil analysts seemed surprised last December when Saudi Arabia elected to keep their oil production at a high level even when new oil from Iran, Libya, and the U.S. were flooding the market.

But the most likely, rational reason to maintain high production is to drop the global price of oil. Saudi Arabia's oil is very cheap to produce — it's the cheapest in the world. It costs them less than $5 a barrel to produce. So even with lower prices, they're still making money. That isn't the case with the fastest-growing oil producer (and therefore biggest competitive threat), the USA.

"At a recent oil industry event in London," writes Regan, "OPEC's Secretary-general Abdullah al-Badri told reporters, 'If prices stay at $85, we will see a lot of investment going out of the market. About 65% of the producers, they have high costs. Not OPEC.'"

They're looking at the long term. If they hold prices low for awhile, maybe U.S. production will crash. Then they can go back to gouging the world in peace.

Regan concludes with an acknowledgement that lower oil prices are great for the economy, but we should "maintain investment in all forms of alternative energy."

That doesn't go far enough. We don't merely need "alternative energy," we need something more specific: Competition in the fuel market. Not weak competition, but vigorous, robust competition, which can only happen if individual cars can burn multiple fuels. It would not be difficult to accomplish and it would cost very little. But it would shield us permanently against OPEC's monopolistic manipulations.


Subscribe to the RSS Feed

Subscribe to Email Updates

Enter your email address:

Delivered by FeedBurner

Like us on Facebook

Current Status of the Open Fuel Standard Bill

  © Blogger template The Professional Template II by 2009

Back to TOP