U.S. oil production can destroy OPEC
Thursday, 26 April 2012 | 00:00
University of Maryland business professor Rafael Corredoira's claim that higher domestic oil production won't affect prices is flat wrong ("More domestic production won't lower gas prices," April 20).
The only way that a cartel, such as OPEC, can exist is if it controls a large enough proportion of production of the product, in this case, oil. If another large supplier enters the market, OPEC must reduce its output to maintain the world price, which means that the revenue to the OPEC members will decrease. Many of the smaller members of OPEC are extremely dependent on income from oil and cannot tolerate a long term reduction in their revenue from oil.
In past cases of oil gluts, when OPEC tried to maintain the world price by reducing output, the smaller producers refused to reduce production so it was left to Saudi Arabia to take most of the reduction. But even the Saudis have a limit to the long term loss in revenue that they can tolerate. This is how cartels die. The demise of OPEC would be a great boon to the rest of the world.
Source: Baltimore Sun
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