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In your opinion, what are possible reasons behind reduction in oil price?

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by Kevin Stoda, Oman

Saudi Arabia, which had contributed to glut through over-production while underselling fracked oil and and other costly petroleum commodities, recently has gone to war with Yemen. This led to a slight jump in oil prices and likely inflation elsewhere where the so-called free-market is allowed to reign.

NOTE: Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes.

The reason I use the term "so-called capitalism" (above) is because nowadays terms, like monopolistic or monopoly-like economics, better explain most political economics and how they (economies of states and regions) function in terms of intra-state, interstate, regional and global activity. In short, in many cases either monopolistic economics, or monopolistic competition, or actual monopolies--especially national and multinational ones--do indeed determine price and manipulate effects in the markets, especially in terms of petroleum.

For example, Oman--which pegs its rial (currency) to the dollar--actually runs a monopolistic competition at the gas pump by offering different name brands a seat at the table--Shell and various national gas firms are found here offering fueling services to drivers. However, as it functions, the government controls oil prices here--at a higher rate at the pump than do neighboring countries, like Saudi Arabia and Kuwait. This is fine policy because for both Oman (and Saudi), keeping inflation stable is important. Price fluctuations in oil affect every part of our lives.

Deflation and inflation are to be avoided. So, here in many GCC states it is "spend & spend" initiatives that are continued on the home front; i.e., purchases for national concerns, like education, defense, and infrastructure or services, are continued at a much higher level than in the USA.

In short, when Saudi oil prices go down, so do Omani oil prices--but this does not occur much at the local gas pump. The gas price at the pump is still pegged higher in Oman than Saudi and Kuwait--as it was last year and the year before. This is due to government regulations and due to other companies in the "monopolistic competition market" following the lead of the previously-government-owned-rules for trading and doing business. (The government is signalling that fluctuation of prices is bad for Oman. Shell and others therefore have a higher profit in Oman than their counterparts in other GCC countries.)

A similar phenomenon occurs in the Philippines, which, unlike Oman, has only a small supply of homegrown crude oil in production. That is, prices only rarely go down even if their is a global gut in oil. The government does nothing to force the oil price down as mostly only a few oil firms function throughout most of the country--allowing them edges in the "monopolistic competition market".

In contrast, in the USA, where politics strongly desire the price of oil to stay down for short-term political economic reasons, the larger (more capitalistic competition) market in the USA follows (1) the signalling from Washington but all the while (2) looks forward to the next geo-political explosion in the Middle East (or elsewhere) as an excuse for market hysteria and another boom in price--hence a boom in the petroleum-production sector.

Especially, as Wall Street stocks have continued to rise, the USA economy loves deflation in the oil sector so as to avoid overall inflation in the country to remain small. In short, the somewhat stagnant USA economy is bolstered by low oil prices--i.e., the area that affects the average American's pocket much more greatly than it does in other lands, like Oman, Saudi Arabia, and even the Philippines (where transportation costs are lower through high levels of cheaper shipping transport and shorter distances traveled per person annually).

The USA participants in the monopolistic market are not the only ones who are ready to manipulate prices. Currently, the plan of Saudi Arabia continues to be: Saudi, "[t]he biggest exporter [of petroleum], has let prices plummet--delaying the day when climate concerns, efficiency, and fuel switching break the world's dependence on crude."

This evidence of monopoly-like behavior is present in the petroleum sectors throughout the world. Also, destruction of infrastructure through war or whatever means can raise prices in a pinch even in a glut if fear is present.

However, currently, Saudi is so committed to slowing down the globe's movement toward using and creating alternative-energy sources that it tries to maintain cheap oil even as war ravages its neighborhood and causes instability for others in the region (Middle East or elsewhere in the region). This contrasts with its oil policy some years ago, when prices were allowed to rise globally during USA invasions of Afghanistan and then Iraq.

Read more here: Mystery Behind Dropping Oil Prices Solved: Concerted Market Manipulation

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KEVIN STODA-has been blessed to have either traveled in or worked in nearly 100 countries on five continents over the past two and a half decades.--He sees himself as a peace educator and have been-- a promoter of good economic and social development--making-him an enemy of my homelands humongous DEFENSE SPENDING and its focus on using weapons to try and solve global (more...)

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