4 ms·
I think you're being sarcastic, but this is basically what OPEC and others do.
by foota 4y ago
I think you're being sarcastic, but this is basically what OPEC and others do.
- refurb 4y agoOPEC only controls 40% of all supply and often accuses its members of breaking quotas. Producers seek the profit maximizing price, not the highest price (those aren’t the same). Would you rather sell 1,000,000 barrels at a profit of $10 per barrel ($10M profit) OR 1,200,000 barrels at a profit of $9 per barrel ($10.8M profit)?
- blagie 4y agoI would rather sell 1,000,000 barrels at a profit of $10 per barrel: - If I lowered prices to $9, my competitors would follow, and I'd likely sell only 1,000,000 barrels - I have a finite supply of oil. If I sell 1,000,000 now, I'll have an extra 200,000 to sell at some point in the future. I'd like each barrel to cost as much as possible. In other words, there are time dynamics. OPEC might only control 40%, but if everyone follows OPEC, everyone wins. If someone breaks from OPEC, other parties have an incentive to break as well. There are many silent cabals, where parties don't conspire in any explicit way, except by signalling through market prices.
- refurb 4y agoI would rather sell 1,000,000 barrels at a profit of $10 per barrel Sure, and I'd love to have $1B, but that doesn't mean I'll get it.. Yes there are time dynamics - ramping up production, production delays due to maintenance, prices changes you can't predict. Nobody has a crystal ball. And OPEC can't even control it's own members, so I'm highly skeptical anyone else follows them. Humans are great at seeing patterns where there are none. Oil skyrocketed in 2008, everyone said it would never go down, then it crashed below $20. That doesn't seem like the kind of market where suppliers control the price.
- lesuorac 4y ago> everyone said it would never go down Citation needed. The US Gov literally said the current (in 2008) high price are due to demand/supply mismatch and "most industry experts contend that oil resources are plentiful ... Drilling activity is at a high level" [1]. As in the price will go down. OPEC only needs to control its members a tiny bit. Oil is sold on the margin and so a tiny demand/supply mismatch means a large price difference [2]. [1]: https://www.dallasfed.org/~/media/documents/research/eclett/2008/el0805.pdf https://www.dallasfed.org/~/media/documents/research/eclett/... [2]: https://www.vox.com/2015/1/5/7493799/oil-prices-chart https://www.vox.com/2015/1/5/7493799/oil-prices-chart
- refurb 4y agoCitation? Everyone I spoke with back in 2008? Sure anecdotal, but that's what my comment is basing it on. Regardless, I think you just proved my point. Supply/demand determines prices not OPEC. If OPEC controlled prices they wouldn’t have dropped 80% post-2008. Prices were so low that capacity was taken offline and some countries has serious financial difficulties. That doesn't sounds like a monopolistic market.
- geertj 4y ago> Producers seek the profit maximizing price, not the highest price (those aren’t the same). Is this true when you only have fixed amount of the commodity? Wouldn’t players try to optimize the total NPV of all resources sold into the future?
- refurb 4y agoOil is not a fixed commodity. New reserves are discovered or become economically viable all the time.
- midasuni 4y agoI’d set my price to the point where it’s cheaper than the competition - I.e if a country shift more towards nuclear or wind then I’d tempt them back with lower prices. The correct solution for the consumer is to massively reduce the reliance on oil, but that requires long term planning which democracies and corporations are awful at.
- dmos62 4y agoThat's an interesting point.