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Home Publications Blogs Beat the Press Wall Street Journal Needs Education on Oil Markets

Wall Street Journal Needs Education on Oil Markets

Wednesday, 03 July 2013 12:40

The WSJ told readers that people in the United States are much better off today because of increased North American oil production, which it claims has led to more stability in world oil prices. It contrasts the current situation to the instability of 8 years ago:

"The group, made up of business executives, former diplomats and retired military leaders, hosted "Oil ShockWave" simulations, inviting former senior policy makers to role-play responses to hypothetical oil-market disruptions. Former Treasury Secretary Robert Rubin played the part of the president's national-security adviser in a 2007 simulation in which unrest closed a pipeline linking the Caspian and Mediterranean seas while Venezuela and Iran cut output to protest sanctions on Iran, sending global oil prices soaring."

In 2007 the world price of oil averaged around $65 a barrel in current dollars. It is currently over $90. If we had been willing to push oil prices 40 percent higher back in 2007, there would have been much less risk of price spike due to an interruption of supply. It's unlikely that many people would consider the higher prices of today a good trade-off for greater price stability, even if in fact the market is more stable going forward, as the article asserts.

Comments (4)Add Comment
Counting Chickens
written by Robert Hurst, July 03, 2013 2:13
I hope US 'policy makers' aren't counting on domestic oil production to rise for very long.
written by skeptonomist, July 03, 2013 2:24
From the point of view of oil price and supply reliability, increased North American production could only be a good thing, period, especially for the US. The increase in price from 2007 is hardly due to increased North American production; without such greater production the price rise could only have been higher. There is no trade-off.

The increased supply of oil and natural gas does postpone a switch to alternative energy sources, which would probably have been encouraged by both higher fossil-fuel prices and unreliable supply. It probably increases the political clout of the oil and gas industries in the US.
In 2008 oil price spiked well above $90, without any major disruptions to supply. Then it crashed and bounced back up.
"Oil Shockwave" Predicted to Hit Broadway as Portrayal of Heroes of Stability and Certainty at Any Price
written by Last Mover, July 03, 2013 2:31

Who played the role of George W. Bush, Boy Monarch in this simulation? And his Vice Nanny potty trainer Dick Cheney?

Surely these two more than any others deserve credit for stablizing the price of oil for North America. In a brilliant one-two punch, they took out Iraq, Iran's worst enemy, then wrestled away Iraq's rights to its own oil after being freed from Islamo Suddamo Hussamo terrorism so the MNCs of oil could control it.

Joseph Stiglitz says the whole package costs oh, two, three trillion or so in total economic cost. But hey, what's a few trillion in subsidies to the rest of the world to keep the price of oil at $65/barrel in 2007?

It's not like America was the only one getting benefits you know.
What is price/volatility relation?
written by Andrew Burday, July 04, 2013 9:32
If you're having a slow day soon, at least one tolerably intelligent, slightly sophisticated reader isn't sure he understands exactly why higher real prices would produce less volatility. Higher prices will diversify supply by bringing economically marginal sources online. Is that the main cause of reduced volatility? I guess increasing the denominator also reduces price volatility, to whatever extent price shocks produce absolute rather than relative changes in price. Have I missed something here? It's just not obvious to me why prices won't fluctuate around the higher level just as easily as they would around a lower level. Those are my two best tries at an answer.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.