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Competitive Markets, Marginal Prices and Oil Supply

An interesting intersection of topics we’re covering in class in this article:

One reason for the renaissance has been OPEC’s erosion of market power. “For nearly 50 years in this country nobody looked for oil here and drilling was in steady decline. Every time the domestic industry picked itself up, the Saudis would open the taps and drown us with cheap oil,” he recalls. “They had unlimited production capacity, and company after company would go bust.”

Today OPEC’s market share is falling and no longer dictates the world price. This is huge, Mr. Hamm says. “Finally we have an opportunity to go out and explore for oil and drill without fear of price collapse.”

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  1. Drs. SR
    November 15, 2011 at 11:40 pm

    I think,,,
    In a past, during last 50years (short run) OPEC represented market power. OPEC had the largest portion of total suply in market of oil. There was not many others and if were they could not adjust to prizes which has OPEC set.So if USA wanted to be the efficient than had to import the oil because domestic prize was much higher than OPEC´s prize of oil.
    Now(in a long run), as we see in the article: OPEC market share is falling and no longer dictates the world prize.
    As Mankiw says: in a short run both supply and demand are relatively inelastic but
    In a short run supply is relatively inelastic because quantity of known oil reserves and the capacity for oil extraction cannot be changed quickly.
    But it is different in Long run – over long periods of time producers of oil outside of OPEC respond by increasing oil exploration and buy building new extraction capacity.
    In last 5O years (long run) USA became more oil independent. There was found a lot of oil deposits all over the country (f.e.Utah,Colorado) besides USA started to import oil from Mexico or from no OPEC countries.
    But I think this is not about OPEC and USA it is about whole word.
    In last 50 years(long run) oil started to produce in almost every corner of the world and almost every region has oil production expand in the last decade(last decade represents long run). This includes Europe, for example Norway where oil companies achieved very high level in oil extraction and also Russia now one of the world’s largest oil suppliers.

  2. Drs. SR
    November 15, 2011 at 11:48 pm

    Drs. SR :
    I think,,,
    In a past, during last 50years (short run) OPEC represented market power. OPEC had the largest portion of total suply in market of oil. There was not many others and if were they could not adjust to prizes which has OPEC set.So if USA wanted to be the efficient than had to import the oil because domestic prize was much higher than OPEC´s prize of oil.
    Now(in a long run), as we see in the article: OPEC market share is falling and no longer dictates the world prize.
    As Mankiw says: in a short run both supply and demand are relatively inelastic but
    In a short run supply is relatively inelastic because quantity of known oil reserves and the capacity for oil extraction cannot be changed quickly.
    But it is different in Long run – over long periods of time producers of oil outside of OPEC respond by increasing oil exploration and buy building new extraction capacity.
    In last 5O years (long run) USA became more oil independent. There was found a lot of oil deposits all over the country (f.e.Utah,Colorado) besides USA started to import oil from Mexico or from no OPEC countries.
    But I think this is not about OPEC and USA it is about whole word.
    In last 50 years(long run) oil started to produce in almost every corner of the world and almost every region has oil production expand in the last decade(last decade represents long run). This includes Europe, for example Norway where oil companies achieved very high level in oil extraction and also Russia now one of the world’s largest oil suppliers.

    Mankiw says:in the SHORT RUN both supply and demand are relatively inelastic but in LONG RUN demand and supply is much more elastic
    …sory to Gregory for not finishing his idea in the middle of article my article

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