Oil Econ 101
By Arnold Kling
I once wrote an essay called Oil Econ 101, in which I argued that while we can lower our consumption of oil, that would not reduce our dependence on Saudi oil. Ram of postpolitics.com suggested I might want to comment on this interview with Robert Baer, a former CIA analyst who is concerned about what he sees as the unsustainability of the Saudi regime.
I’ve talked to a lot of oil analysts and they’ve said, “You know, you cite the figure of $150 per barrel if the Saudis’ contribution to the world oil supply were cut off, but there are no econometrics for this.”
The important point is that for a large price shock to occur, Saudi oil production would have to be curtailed. It is not enough for the Saudis to stop shipping oil to the United States–in the world market, oil is oil. Regardless of where they ship their oil or where we buy our oil, it is overall supply and demand that determines the price.
For Discussion. If you believe that there is a probability of at least one percent that the world price of oil will be $150 in three or four years, what opportunities are there for private companies and for speculators?