[OPE] Reflections on the oil price controversy

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Thu Jul 17 2008 - 13:05:51 EDT


Thanks for your comments but I don't follow what you might mean, so I have to file it. 

I previously quoted a Prospect article which mentions "According to some estimates, there are now up to three times as many 'paper barrels' traded in New York and London as there are physical barrels of oil supplied to the world each day." In that case, the physical demand and physical supply of oil alone which gets focused upon cannot explain the price-level of oil - it is possible to influence the oil price independently of actual oil requirements and actual oil supply, and that is what Chaudhuri was highlighting. That is partly why OPEC says "we can influence the oil prices on the supply side, but we cannot control them."

It is true that speculating capitalists, as it were, "ride" on an already existing price trend, but if the value of traded oil title vastly exceeds the physical oil traded, they actually very significantly contribute to making the price trend and "artificially" inflate or deflate the price as a group, analogous to an overvalued stock which episodically gets devalued and revalued. Thus, very extensive financial intermediation, and the hoarding it contributes to, actually distorts the "price signals" beloved of economists which would exist, if there was simply only trade between producers of oil and actual users of oil, i.e. there is a "third force" operating in the market (let's call it the rentier class) which can independently influence supply and demand by investing in or divesting from oil. Oil is obviously just one example, but that is just to say we cannot realistically talk anymore about "the forces of supply and demand" without paying attention to the patterns of capital finance, mediating those forces.

Since there are something like 4 billion barrels of extracted oil stockpiled in the world by corporations and governments, then in principle it would be possible to expand the effective world oil supply very rapidly, and affect the price that way, but that's obviously unlikely to happen very easily.

Apart from the implications for the lives of billions of people, the way the oil story plays itself out tells us something about: 

(1) the power-relationship between different fractions of the propertied classes and between different nation states, 
(2) shifts in the global distribution and redistribution of income & wealth 
(3) shifts in bourgeois ideology and attitudes (the talk follows where the money and power is). 

That is presumably why a political economist or a social scientist would take an interest in the topic. At least, that is why I thought I would post something on it.

A Marxist (if there still are any) would add: beyond the surface marketplace chatter about whether oil is priced competitively or not, and whether there is enough supply and demand, this price trend has important consequences for the international pattern of class conflicts.  

You wouldn't catch me arguing that OPEC or other oil producers have no interest in renewable energy sources, because that it obviously not true, and a quick Google will be sufficient to establish that. 

If the US polity selected a baseball chief with a background in oil business (one of the most profitable large businesses on earth) to be the US president, that is hardly accidental. We're talking big money. Very big money.


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