Is a free market ever fair?
Today's Financial News - Posted December 1, 2008
The world’s oil producer are forgetting the basics of a free economy. When oil prices were soaring, OPEC loved a free market. But now that prices are plunging, it wants to implement artificial measures to stop the bleeding.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): My mother always told me that life is not fair. As the cute little youngster I was, I would point to a piece of candy and say, “I want that.”
How anybody could resist my innocent charm, I do not know. But she would give me a stern look and say, “How does it feel to want?”
At the time, her refusal seemed less than fair. But now that I am all grown up and not fat and spoiled, I can see the wisdom in her decisions.
Apparently, OPEC did not have a mother as smart as mine. Now that oil prices are in the $40 range and the cartel’s profits have plummeted, the world’s oil-exporting countries are telling us what they think is a fair price for a barrel of crude.
Our so-called friends in Iraq think $80 per barrel is adequate. Saudi Arabia is cutting us a break, asking for just $75.
Where was the notion of a fair price when black gold reached $147 per barrel? OPEC was not cutting any deals in July.
Which way do you want it?
When energy is in high demand and prices are soaring, OPEC worships the free market. For the past two years, they told us their supplies were no match for what the world was calling for. The only way to slow demand was to raise prices.
But now that consumption has dropped by double-digit figures, OPEC suddenly wants to eliminate the free market. It wants to lock in a “fair” price for its goods. The group voted against production cuts today, but promised another round of cuts when it meets later this month. Somehow, it thinks raising prices will increase demand.
Oil prices dropped by nearly five percent on today’s news. I could not be happier.
OPEC says the world needs expensive oil if we want it to continue exploration and development. I say they are full of it. The free markets will dictate what it takes to increase production, not some guy that controls a pipeline valve.
Frankly, OPEC is acting just like the rest of the world. It embraces the free market when profits are good, but calls for price control and artificial measures the instant things get shaky.
We all knew hard-to-reach oil sands and expensive drilling techniques were risky and demand would eventually fall. Yet, OPEC continued to drill away. Now it is asking us to pay for its mistakes.
If you want to invest in the energy industry, look for stronger commodities like coal or even natural gas. Or you can always short the oil sector. Whatever you do, do not fall into OPEC’s trap and believe oil ever has a fair price.
The Mid-East wants higher oil prices. I say, “How does it feel to want?”
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