Expanding on Willy Sutton, America's notorious bank bandito's famed dictum, "that's where the money is" today's oil industry rationale for the pricing of oil could be capsulated by, "that's where the money is, but hey, don't worry, the system is still working"!
Just this past week, one of Organization of Petroleum Exporting Countries' (OPEC -producers of some 40 percent of the world's oil supply) most ardent adherents, Qatar Oil Minister Abdullah Al Attiyah instructed us that a $60 US crude oil price was "moderate". "The world lives with $60...$60 per barrel crude is moderate for consumers". Thereby he clearly articulated OPEC's objective of rigging a $60/barrel price by imminently cutting production some 1.2 million barrels a day. This, at the very outset of the winter heating season.
$60 a barrel is treble what the price of oil was four years ago. Not one iota of additional economic value has been added by oil producers, whether OPEC or otherwise. Virtually no further costs have been incurred in oil's production and in many cases production costs are actually less given the efficiencies achieved. A barrel of oil four years ago, which then provided oil producers with handsome profits, is the same as a barrel of oil today. Yet the trebling of the oil price in dollar terms brings the following avalanche of riches to oil producers worldwide.
Daily oil production is about 84 million barrels a day. The tripling in price from four years ago comes to $40 for each barrel. That amounts to an additional transfer of wealth from rich and poor nations alike to OPEC and oil producers around the world of some $3,360,000,000 dollars a day or over a trillion dollars a year and parenthetically providing limitless millions directly and indirectly to insurgencies and terror initiatives around the world.
If you believe market forces are the reason for this enormous bonanza benefitting oil producers, than well and good, the invisible hand of the market is doing its job. Alternatively, if you believe the market is rigged with the acquiescence of our and other governments, with the tolerance of a somnolent press, and the shrill cheerleading of the peak oil pranksters, as I do and have written about extensively, than the oil game has become the greatest rip-off of all time (one need only be witness to OPEC's current efforts to manipulate production and price). The fact that our economies are still functioning and that the wealthier nations of this planet have been able to tolerate this heist is not a reason to give the oil industry nor OPEC a free pass. Willie Sutton wasn't so lucky, and his haul was Mickey Mouse by comparison.