Word: pricing
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...this point, the Saudis would also like the price of oil to moderate. But that doesn't mean their interests and ours are now aligned. The way to squeeze as much money as possible out of the power to control the spigot is not to raise prices indefinitely. It is to figure out the point at which the extra money you get from the higher price is no longer more than the amount you give up in lost sales. Making this calculation regarding oil is especially tricky because of the differing calculations for the short run vs. the long...
...Saudis apparently believe that a lower oil price will be good for them in the long run. If they're right, it surely means that a lower price would be bad for the U.S. When it comes to the price of oil, the interests of producers and consumers are diametrically opposed. Whatever pious rhetoric comes out of exercises like this absurd "summit," there is no way that a change in either direction can be good for everybody. It's a zero-sum game...
King Abdullah's seemingly generous offer of a billion dollars from OPEC countries (plus $500 million from his own treasury) to help poor countries cope is also nothing to be grateful for. It amounts to backdoor price discrimination: charging different customers different amounts to extract the maximum from each...
Back in the U.S., both parties' presidential candidates are humiliating themselves and us with economic nonsense about oil. John McCain speaks passionately on the need for energy independence, but he is sticking to his counterproductive notion of a gas-tax holiday that would cut less than 20¢ from the price of a gallon. This man really thinks we're chumps...
Barack Obama's great insight is to blame "speculators" for raising oil prices artificially. This could even be true, but if so, it's irrelevant. Speculators cannot affect the price of oil in the long run. What speculators do is get us to the long run sooner. If they think underlying forces of supply and demand will ultimately result in oil at $200 per bbl., they will bid up the price until it is close to $200 per bbl. already. Similarly, if speculators think the price of oil will go down, they will drive it down more quickly. So, actually...