The World Oil Market: Past and Future*

Abstract

Private owners of world oil resources eventually failed to restrain abundance and keep an above-competitive price. The OPEC nations had far greater market power, but overestimated it. Short time horizons drove OPEC nations to raise the price too much. They retreated to a more tenable level. But like all cartels, they find it hard to reconcile group welfare with short-run individual interest. Oil continues abundant, so far. The main obstacles to non-cartel expansion are man-made such as taxation and state companies. They are very slowly yielding. Depending on how fast they erode, world supply will grow, and price pressure will be downward.