FROM John Rockefeller’s Standard Oil in the late 1800s, through the Railroad Commission of Texas in 1930, to OPEC since 1960, institutions have long tried to control and stabilise the oil market for their own benefit. Only rarely, says Jason Bordoff, director of Columbia University’s Centre on Global Energy Policy, has the oil market behaved like a normal market, more subject to the laws of supply and demand than to the whims of a cartel. Now is one of them.
Take supply. A year ago Saudi Arabia refused to allow OPEC to try to raise prices by pumping less crude, in the hope that a low price would drive competitors, especially America’s shale-oil producers, out of business. Since then it has used its low cost of production to carve out a bigger slice of the pie. It has fought with Russia and fellow OPEC members to sell oil to China. Seth Kleinman of Citibank says that it has recently sought to displace Russian crude going into refineries in Sweden and Poland, and cut prices across Europe.
Producers with higher costs, including big listed oil firms and many rival national oil companies, have also behaved rationally,…Continue reading