Friday, May 16, 2008

Does OPEC remember the 1980s?

Michael Giberson, over at Knowledge Problem, writes about Marc Vatter's analysis in "OPEC's Demand Curve."

High prices induce a number of adjustments, some of which have long term repercussions. Last time there was an oil price shock at all comparable to the present was around 1979-1981, when world oil prices reached near $100 (in $2008). High prices then helped support continued growth in non-OPEC oil supply (which really got started during the oil crisis of 1973) and spurred substantial consumer interest and investment in energy efficiency. Over time the adjustments contributed to a nearly 20-year long period (roughly 1986-2004) of prices below 1973 prices in real terms.
He sums up his estimates by saying, "we should not expect prices to fall below [$81 a barrel in $2008] for long" given current non-OPEC supply and world oil consumption.
Two of the economics profession's warhorses remember the 1980s. Gary Becker has a post on the rising price of oil in which he discusses why oil is not headed to $200/barrel. Richard Posner is rooting for $200/barrel oil.



Blogger Peter Varma said...

This is one of the neatest blog sites I saw. Very nice indeed.
Oil prices is only a matter of demand supply now, even with the US economic slowdown and its worldwde ripples.
Even if the oil rigs/ wells/ refineries pump more gas now, it will have a temporary affect on prices.
More on reading your blogs.

2:30 PM  

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