Competition policy
OPEC and the price of oil: the need to reform the global oil market
Ideas for stabilising oil prices
Authors:
G. Luciani
Publisher:
Gulf Research Centre, 2007
Over the course of 2007 oil prices have doubled. If prices continue to rise in this manner the world economy will suffer as will major oil exporters. The Gulf Research Center discusses three possible explanations of this recent price rise phenomenon: geopolitical considerations, fundamentals and financial market analysis.
The root cause of the current situation is thought to be that the price of oil is fixed by trading of a financial, rather than a real asset. It is therefore suggested that OPEC should take on the role of price maker rather than indirectly controlling prices through control of supply.
Producers and consumers would be better off if price signals were allowed to come from the trading floors. This would not need frequent active intervention because the knowledge that producers might influence the market will discourage excessive speculation. The key is to devise a market structure that will be more stable even in the absence of intervention.
