The Price of Oil (and thanks, Jim H)

Henry C.K. Liu hliu at
Tue Dec 29 15:06:20 PST 1998

DamonMac at wrote:

> The US power structure wants stable oil prices as well (at least above $10 a
> barrrel) because low oil prices causes political instability/unfriendly
> regimes to take power (look at recent Venezuelan political events) in oil
> producing states.

This factor is over played. If all of Asia can go down the drain economically without political fears, Washington is not the least worried about the oil producing countries who have no place to go except to stick with the capitalistic system.

> The low price also inhibits expanding
> production/exploration of new fields in this capital intensive industry. The
> Arab Anti-defamation Committee just hosted a panel discussion about this
> latter point. I think this is one of the main reasons the US has been pushing
> for the sanctions so hard; they fear prices/barrel in the single digits. This
> was also mentioned in the latest Middle East Report.

The well-head cost is less than $4/barrel, the rest are market induced leasehold cost. North Sea oil is higher because of off shore drilling investments. Oil can stay at anywhere above $7 for quite a few year without doing any harm to the U.S. or Europe. It will go back the $35 oil by about 2005, and a lot people will get rich alog with it. OPEC is touting this line of argument,(threats on new exploration) to get the non-opec economies to get behind higer oil prices. In the long run, less new exploration is good for OPEC. Before 1973, the whole world was happy with $4 oil. As for America, cheap oil keep inflation low, the dollar high and interest rate low. These benefits out-weight the sectorial problems created by a collapse in oil prices. In oil, no one has told the truth for over 80 years.

Henry C.K. Liu

> Damon Fodge

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