adios
06-09-2004, 11:38 AM
I thought this was a very good perspective on OPEC that I read today on a forum. Pardon the term O-Pecker, it's crass but the points are very good I think:
If You Were an O-Pecker --
think about the problem you have. Your goal is to maximize the net present value of your resources, but how to do it? If you limit production just a little bit, you can drive prices higher and vice-versa due to the inelasticity of the price-demand situation, however if you drive up prices too much, you encourage all sorts of activity that in not in your long-term best interest (e.g., conservation, alternate energy, more drilling in non-O-Pecker country, etc.), but if you drop prices too low, you don't realize the full potential amount of loot you can bleed out of the rest of the world.
My hunch is that they have rooms fulla guys working this problem day and night - Harvard PhD Economist types too.
And don't think for a moment they can't raise production if they want to . . . Saudi Arabia has 50 years of production at their current rate. Their current production cost is 2 bucks a barrel - up from 25 cents in the 70s. There are regions in O-pecker country that haven't even been explored.
If I was a O-pecker, I would drop the price down to about 35 bucks a barrel 'till the heat was off, then I would let it creep up - kinda like the frog in the pot of hot water. If the west got serious about alternate energy and such, I would drop the price 5 or 10 bucks a barrel to put them folks outta business, then let it run back up.
Oil in excess of 40 bucks a barrel and you start getting western countries dusting off their war plans for invasion, CIA guys running around trying to figure out how to overthrow governments, and stuff like that.
That is my take on it anyway.
Political and Terrorist events can throw everything out the window, however - if the House of Saud falls, all hell will break loose.
If You Were an O-Pecker --
think about the problem you have. Your goal is to maximize the net present value of your resources, but how to do it? If you limit production just a little bit, you can drive prices higher and vice-versa due to the inelasticity of the price-demand situation, however if you drive up prices too much, you encourage all sorts of activity that in not in your long-term best interest (e.g., conservation, alternate energy, more drilling in non-O-Pecker country, etc.), but if you drop prices too low, you don't realize the full potential amount of loot you can bleed out of the rest of the world.
My hunch is that they have rooms fulla guys working this problem day and night - Harvard PhD Economist types too.
And don't think for a moment they can't raise production if they want to . . . Saudi Arabia has 50 years of production at their current rate. Their current production cost is 2 bucks a barrel - up from 25 cents in the 70s. There are regions in O-pecker country that haven't even been explored.
If I was a O-pecker, I would drop the price down to about 35 bucks a barrel 'till the heat was off, then I would let it creep up - kinda like the frog in the pot of hot water. If the west got serious about alternate energy and such, I would drop the price 5 or 10 bucks a barrel to put them folks outta business, then let it run back up.
Oil in excess of 40 bucks a barrel and you start getting western countries dusting off their war plans for invasion, CIA guys running around trying to figure out how to overthrow governments, and stuff like that.
That is my take on it anyway.
Political and Terrorist events can throw everything out the window, however - if the House of Saud falls, all hell will break loose.