Publications: Notes at the Margin

Intervention Success: Lessons from the Currency Markets (November22, 2021)

 

Skepticism abounds regarding the ability of oil-consuming countries to influence prices. Again and again, one reads that President Biden is powerless to offset rising crude costs. Delays in US actions since the current discussion of this topic began only solidify the view. One also repeatedly hears that government-controlled oil inventories held in consuming nations can have little impact on prices.

 

The chatter regarding the consuming governments’ impotence has been dominated by those writing about and analyzing oil market fluctuations. To date, though, no economist or industry employee has said anything regarding potential oil market interventions or their effectiveness. Specifically, economists and financial experts with significant experience in market intervention have been silent.

 

That said, working through the literature and the data clarify that interventions can succeed and that oil-consuming countries (or one country) can depress oil prices, just as the OPEC members, Russia, and other OPEC+ participants have been able to do the opposite.

 

The data reveal that consuming countries could likely reduce prices by twenty or thirty percent by mid-2022 if they act boldly, assuming oil-exporting countries do not implement counteracting production cuts. As noted below, though, such retaliation by the latter could precipitate an immediate economic clash with serious long-term repercussions.

 

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