Lagniappe
William
Gamble : End
of high oil prices
Despite all of the dire predictions about the price of oil, the
truth is that it will go down, all markets do. What we are witnessing
is the last stages of a buying frenzy as part of a commodities bubble.
If for no other reason the price of oil will go down, because the
higher it rises, the greater the possibility of recession. A high
price of oil means that one of the largest inputs for any economic
activity is priced out of reach. Margins go down as the price of
oil goes up. Either inflation goes up or the economic activity stops
or both. If the economic activity stops or slows, a recession occurs.
If inflation goes up, eventually the central bank or government will
have to slow the economy to get rid of inflation or face social and
economic disaster. In either event, the country goes into recession.
Since the price of oil is high around the world, the process repeats
itself in country after country as the world goes into recession.
With economic growth stifled around the world, the demands for oil
declines as will its price.
The
analysis of why there is an oil shortage is also wrong. The real
reason
for high prices is socialism. From a supply side, the
problem is state owned oil companies. While everyone focuses their
criticism on large multinational oil companies, the real culprits,
huge state owned companies, never get mentioned. The truth is that
the multinational oil companies are midgets compared to the state
owned companies like Saudi Aramco, Qatar Petroleum, Venezuela’s
PDVSA, National Iranian Oil Company, and Russia’s Rosneft and
Gazprom. These are the real companies who control the price of oil
and they all have a problem. They are run by politicians who steal
and who can’t develop the reserves they have. As a result the
amount of oil that these companies produce is often declining resulting
in less oil for the world market.
The other part of the socialist problem is demand. Countries from
China, Russia, India, Indonesia and many others subsidize the price
of fuel. This is supposed to help the poor, but it also encourages
people to be wasteful and economies to be inefficient. It wastes
scarce resources, but many of these countries are not democracies,
so the social unrest from the loss of these subsidies cannot be contemplated.
Eventually the costs from these subsidies will be simply too great.
China is running its national oil companies into the ground by forcing
them to subsidize the price of energy. Its power plants are closing
because the price of electricity is fixed but the price of coal is
not. Eventually this system collapses and will result in less demand
and lower prices, to say nothing of the misery that these countries
will inflict on their own citizens.
William
Gamble is
the author of "Freedom: America’s Competitive
Advantage in the Global Market" and
CEO of Emerging Market Strategies (william@emergingmarketstrategies.com)
. Petroleumworld not necessarily share these views.
Editor's
Note: This commentary was originally published by Newsreleasewires.com,
on May 21, 2008; A01.Petroleumworld
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