PRICE LEADERSHIP. Volokh Conspiracy's David Bernstein suggests that the occupying powers in Iraq take the opportunity to end OPEC's effectiveness as a price leader. At the moment, OPEC is relatively ineffective as a price leader, but the occupying powers (U.S. and U.K.) have some interest in the price their oil producers see, as do some of their neighbors (Mexico and Norway) that are not OPEC members. It is worth remembering that OPEC inherited the output-restricting role once enjoyed by the Texas Railroad Commission. As the nature of the trust fund for Iraqi citizens has not yet been spelled out, the interest of the Iraqi authorities in attempting to price their oil (cheap or dear) has not yet been determined. Simplest solution is to make no efforts to manipulate the price of crude, as attempts by OPEC to function as a price leader simply make it more attractive for nonmembers to produce more, which reduces the sales of the OPEC participants.

No comments: