Sunday, June 22, 2008

OPEC Mumbo Jumbo

Lately, the leaders of OPEC say the high price of oil is due to speculators, and taxes, and even irrationality. Everything except the fact that they cannot meet global demand.

My view is that it is in their interest to maintain the status quo in terms of the demand structure of the global economy as long as possible. And, by demand structure, I mean the heavy reliance on their product for transportation.

Suppose for a moment that the shortage of oil is permanent and real. As soon as most people come around to this realization, the global transportation system will begin to transition away from oil. That transition will end the oil state as it exists today.

Many OPEC members are currently engaged in huge infrastructure projects and are attempting to diversify their economies. The longer they have to develop these projects, the better chance they have of not becoming impoverished when the oil demand dries up.

So, don't expect to hear anything from them about limited supply any time soon.

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