Is it possible to increase the supply and lower the price of oil by drilling “more”?
To make it economically profitable to drill for oil, the price must be high enough.
Every oil company has a “floor” price below which it is unprofitable to drill for oil. Therefore, when oil prices are too low, some companies maybe unable to survive.
In the Andrew Carnegie (steel) and John D. Rockefeller (oil) schools of corporate behavior (and subsequently followed by many other companies and industries), the goal is to drive the price of goods so low as to bankrupt competition. Then, with competition eliminated, their companies were free to raise prices as desire, see here and here.
As a result, oil prices are notoriously fickle. All consumers want lower prices, but oil companies must keep prices high enough to stay profitable. Hence, much geopolitical maneuvering goes on.
Tariffs
The fallout from threatened and already imposed tariffs will change the economic landscape.
It seems obvious that any of Trump’s decisions on tariffs will be only short term, as Trump is constantly changing his mind and plans about everything. Expect constant changes and thrashing on tariffs. Part of his plan is to use tariffs as bargaining chips. Hence any change in the state of relations between countries can spill over into a change in his attitudes about tariffs.
This constant changing of plans and decisions is not a sign of indecision. As said about software, “it’s not a bug, it’s a feature.” Namely, he constantly changes because it has the effect of destabilizing others. He thrives on the confusion he generates. He cannot be pinned down because he can change on a dime.
In addition he is a known liar. He will make statements and later make contradictory statements without a wisp of embarrassment. Expect more turmoil.
Got turmoil? Let me know here.
Dinosaurs made of stone were constructed at the site of London’s Crystal Palace. The illustration by George Baxter in 1854 commemorate these beasts. Courtesy the Wellcome Collection, London. Photographs can be seen here.
The post Oil Prices, Tariffs, and You appeared first in Smile If You Dare.