Oil: More Demand, Higher Prices

An expert says the market for oil is growing, while the power of the dollar will shrink.

After the price of a barrel of oil hit a new high last week (almost $105), President Bush asked the Organization of the Petroleum Exporting Countries (OPEC) to increase production to drive prices down. Instead OPEC officials said they’d maintain current output levels, a move that could lead to prolonged economic sluggishness for the United States. The cartel’s denial looked like political bickering between oil-rich countries


How political is it for the cartel to reject America’s request to raise oil production?

Frankly, this is not the first time that the U.S. has asked OPEC to move, and it’s not the first time they’ve been rejected. So I don’t think that’s a big deal, and I would have been amazed if they had responded. The U.S. consumer and the president are very concerned. From the standpoint of the OPEC producers and the markets it’s a very different situation, and some of these countries, notably Iran and Venezuela, need oil at very high prices in order to finance their economy.

But don’t these countries have an incentive for the world’s largest consumer to avoid a recession?

Well, first of all, there is enormous worldwide demand. And demand in the United States has remained very high. The politicians in the U.S. always make efforts to increase supply. They do next to nothing about demand. Secondly, demand is growing very rapidly in Asia and the Middle East, so you have got demand factors, some of which are beyond the control of American politicians, and others certainly beyond the control of OPEC officials.

Newsweek