From: "Cyrus Bina" <binac at mrs.umn.edu> To: "Doug Henwood" <dhenwood at panix.com> Date: Mon, 5 Nov 2001 15:32:27 -0600
Doug,
The notion of globalization of the oil industry rests on the following mechanisms:
1. The mechanism or the formation of DIFFERENTIAL PRODUCTIVITY (reflecting differential profitability) of oil production globally. This reflects the competition of all oil regions (low cost as well as high cost) around the world. However, in order for the high cost regions (i.e., the US oil) to remain in production at all, market price of oil must accommodate their costs plus normal profit.
2. All the low and lower cost oil regions, given the global market price, would obtain a portion of surplus value as differential oil rents. The magnitude oil rent associated with each lower cost region depends upon the difference between their individual cost and global market price. Thus the lowest cost regions (i.e., Middle East) obtain larger magnitude of oil rents. If for some reason the global price of oil falls to say, 50 percent its actual magnitude, in a sustained period of time, then oil from some of the highest cost region would be shut down and, at the 50 percent global price, the lower cost (than the US, etc.) will make little or no rent. It is in this connection that Oil rent is price-determined. Once the price is determined by the market, the magnitudes of differential oil rents will formed.
I hope this will be helpful.
Cyrus ----- Original Message ----- From: "Doug Henwood" <dhenwood at panix.com> To: "Cyrus Bina" <binac at mrs.umn.edu> Sent: Monday, November 05, 2001 10:15 AM Subject: Fwd: more Bina
> >From: "Christian A. Gregory" <christian11 at mindspring.com>
> >To: <lbo-talk at lists.panix.com>
> >Subject: more Bina
> >Date: Mon, 5 Nov 2001 10:09:32 -0600
> >
> > >These excess profits belong to the distinct category of oil rent; as
> >>such, they can be appropriated by the lessor, the owner of oil-in-
> >>place. The size of the oil rents, therefore, is simply dependent
> >>upon the magnitude of differential productivity (by implication,
> >>differential profitability) of all competing oil regions globally.
> >>Hence, differential profits turn into differential oil rents; and
> >>all differential oil rents are price-determined. This universal rule
> >>applies equally to both OPEC and non-OPEC countries. This explains,
> >>for instance, why OPEC posted prices no longer remain insulated from
> >>the determining (and at times, undermining) impact of spot prices in
> >>the global oil market.
> >
> >I'd like some clarification on this. There are two arguments about rents
> >compacted here: one, that they depend on geographical region cost; and
two,
> >that they pertain to scale (the magnitude of differential productivity).
The
> >latter, it would seem are less important than the former for Bina's
> >argument, since it's the existence of oil rents--"excess" profits gained
by
> >the lessor--that has allowed for _price_ competition to displace OPEC's
> >pricing power. But he says that the differential rents are _determined_
by
> >price, instead of that they determine price and price competition
> >themselves. Or is that what he means by "price-determined"?
> >
> >Christian
>
>