Logic Only a Cartel Could Love

From Reuters:

OPEC President Edmund Daukoru said on Friday that the global oil market is oversupplied by about 2 million barrels per day.

"The market is indeed well supplied with crude today," Daukoru told an audience at the National Press Club in Washington, ahead of next week's meeting of the Organization of the Petroleum Exporting Countries.

It's good of Daukoru to let us know his member nations are being overly opulent in sating our appetite for oil.  Out here in the mystical land of free trade, we prefer to let market forces decide matters of market clearing output levels, Ed.  For all of OPEC's careful planning, it's likely true that we're not at the market equilibrium output level, but it seems is unlikely impossible that we're receiving an oversupply.

In fact, I'm not even sure what Ed would have us believe an oversupply entails.  Oil is a scarce resource, whose cost of production (even including the distorting effect of an international cartel) is exceeded by its value.  As long as that holds (which it does for almost every nation), more please.

If you mean that a tightening on output might benefit OPEC nations, by virtue of spiking prices enough to offset reduced production volume, then you might have a case.  But that's a far different claim - put otherwise, that "We the cartel can increase our profits by reigning in production, at the expense of all net consumers of oil, as well as the pace of global output and the standard of living of people throughout the world."

If you're worried about over- or under-supplying the world oil market, why don't you try disbanding OPEC?  Market clearing conditions will move in almost immediately and make it all better.

OPEC will release its latest output quota decision on Wednesday.

Of related interest, Reps. Jack Kingston (R-GA) and Eliot Engel (D-NY) published this piece in RealClearPolitics today, discussing America's addicition to and growing appetite for oil in the context of their co-sponsored bill H.R. 4409, the bipartisan Fuel Choices for American Security Act.  One unintended and poetic consequence of OPEC's self-serving, non-market optimizing behavior is that any artificial elevation in oil prices serves to amplify the rewards of research into alternative, cheaper, cleaner, more renewable energy sources, the successful development of which would put OPEC clean out of business.