SOME RELIEF FROM INCREASING OIL PRICES? 3
An economic theory propounds that, in seeking their respective self-interests, players in the market effect an equilibrium which results in the common good.
On the supply side, Saudi Arabia, the world’s largest oil exporter and the US’ second largest source of crude, announced that it was increasing its production level by 500,000 barrels per day (New York Times, 14 June 2008). Even as Saudi Arabia is already riding the crest of record profits from oil, this increase in production level will generate even more profits on top of record profits. If other oil exporting countries follow their respective self-interests and correspondingly increase their production levels, the combined effect on world supply will quench the thirst for fuel and stabilize oil prices.
On the demand side, consumers are cutting down on fuel consumption, car manufacturers are developing hybrids (Honda is testing hydrogen-powered vehicles), electricity is being supplanted with renewable & alternative power (wind, solar, tidal, geothermal, etc).
The increase in supply coupled with the dampening of demand for oil should eventually bring down prices to reasonable levels. This should have a corresponding salutary effect on the prices of commodities (i.e., lower costs of production and transportation, etc).
Is this an overly optimistic view of the global economic crisis? What do you think?
image from Microsoft Clipart, reconstructed by Ren Garcia
