The question you raise is the nub of the issue between Hayekians and idealogues of the free market whether they be marxists or straight up neoclassicals. I do not have an answer for you just now but the question is TDC* (*look up engine mechanics for the ref) Travis Fast
> Some interesting points below. To Michael McIntyre, I want to ask a
question
> about information and prices. You said (very roughly) that the price of
oil
> includes information about likely political conditions. Don't the
Hayekians
> argue that prices are nothing but information, information which could not
> be gotten any other way than through anonymous unplanned markets? I know
> this takes the discussion in totally different direction, but I am
wondering
> about this relationship between prices and information that seems to be
the
> foundation stone for capitalist apologetics. I would love to hear more.
>
> Yours, Abu Hartal
>
> I quote here from a chapter "Oil:
> temporarily a special case" in Kunibert Raffer and Hans Singer's The
> Economic North South Divide: Six Decades of Unequal
> Development.(Elgar, 2001)
>
> "When OPEC could not stop the gradual ersoion of its market share it
> abandoned its policy of restricting supply, which led to the price
> collapse of 1986. This policy was mainly based on Saudi Arabia's
> willingness to be a 'swing producer', the country reducing its
> production substantially. Between 1980 and 1985, Saudi production
> declined by more than two thirds. It fell so low that associated gas
> production could no longer meet the kingdom's internal needs.
> Maintaining their idel capapcities in a state of readiness caused
> considerable costs. In August 1985, Saudi Arabia linked prices to the
> spot market, and raised output to 5 million barrels per day in early
> 1986. The emerging new pricing system linked transaction prices
> closely to prices, established in organized trading markets. This
> change highlighted OPEC's new situation. In the 1970s, Saudi Arabial
> Light served as the so called 'market crude,' the basis on which all
> oil prices were calculated. At the beginning of the 1980s, spot
> prices started to dominate official OPEC prices. Nowadays non OPEC
> crudes, such as Brent UK or West Texas intermediate (as traded at the
> New York Mercantile Exchange), are usually quoted as THE oil price.
>
> "UNCTAD (1999) describes the present situation: 'a new pricing system
> dominated by future markets has emerged. Under this system, traders
> set up key futures prices based mainly on expectations of market
> conditions. Transaction prices have become closely linked to prices
> established in the organized trading markets. The large influence and
> the functioning of futures trading have resulted in more transparency
> in the petroleum market, enabling not only consumers but also
> speculators to react to shifts in supply or demand more rapidly.'
>
> "The former direct link between changes in supply and price does not
> exist any longer."
>
> Then on the conditions in the oil market in 2000:
>
> "In spite of further increases of production, prices have not fallen.
> As prices are now determined on exchanges speculators may well be
> able to raise prices further while output expands, thus reducing the
> pricing power of producers, as OPEC (2000) pointed out. After the
> summer OPEC became more outspoken. After three agreements by OPEC
> members to raise output in 2000 and a total increase of 'no less
> than 3.3 mb/d, brining supply to the market will in excess of
> anticipated oil demands', crude prices had [not?] fallen noticeably
> over recents days. According to OPEC, the real reasons for market
> volatility were therefore refining botlenecks, 'speculation in the
> futures market, manipulation of the Brent market due to dwindling
> volumes of this crude,' and widening diffrentials between certain
> types of crudes. These are all elements 'about which OPEC can do
> little or nothing at all'. Naturally the approaching winter is one
> reason fuelling speculatio. Should it be very cold, this would
> strongly affect demand for heating oil."
>
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