Energy Business

A Conspiracy To Keep Oil Prices High

The latest theory about high oil prices is that net exporters of oil are shipping less crude while the world needs more. According to The Wall Street Journal, “Fresh data from the U.S. Department of Energy show the amount of petroleum products shipped by the world’s top oil exporters fell 2.5% last year, despite a 57% increase in prices.”

The argument is supported by saying that oil fields are yielding less in countries like Mexico. And, Saudi Arabia is using more of its oil to build its internal infrastructure. There is nothing new about this line of reasoning, as a matter of fact, it is at least a year old.

What the argument does not take into account is the OPEC & Co. may not think that increasing shipments immediately and pushing down prices is in their best interests. Under this assumption, oil is not is short supply coming out of the ground. It is in short supply when tankers come to take it away.

No matter how much the West, China, and India cry about how their economies are being damaged by crude prices, OPEC members whisper to themselves that there is nothing wrong with making money on what they own. Increasing supply may bring in more gross proceeds for a year or two. Higher prices may yield a greater return for the next decade because there is no evidence that demand will fall.

The belief that there is a secular drop in oil supply is a good way to make a convincing case that oil suppliers are not sinister. But, they are. Making money often has a sinister side. Showing the other party in the game all of your cards usually does not work out well.

OPEC may have more crude than it is letting on.

Douglas A. McIntyre