Saturday, January 15, 2011

OPEC Raises the Price

Kevin Williamson in National Review Online notes that OPEC is not bailing out the world economy:
Good news for Generic Republican, who already has established himself as a legitimate contender for the White House in 2012: OPEC is not bailing us out. The oil cartel is making it known that it is cool with $100 oil and will not act unless prices move significantly higher and stay there. Oil, like most commodities, has been rising steadily as governments around the world keep their printing presses running to dump new money into the global economy.
I don't buy the idea that OPEC controls oil prices. Sure, they manipulate it at the margins, but they don't control the oil market to the extent that De Beers controls the diamond market. The reason for that is simple: each OPEC member is an independent entity. They might agree to fix the price at $100/barrel, but since they are independent actors they can get away with selling for $99/barrel. Whoever's selling for $99 will make up in volume what they lose on margin.

All of that is to say that I think the rising oil price is an indicator of inflation.

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