Publications: Notes at the Margin

The Doha Meeting: Commodity Markets Need Regulators for Stability (April 11, 2016)


Governments often intervene to stabilize markets where other institutions have failed. This has been the case for oil for more than a century. In the 1920s, the discovery of crude in East Texas sent prices down ninety-five percent. Prices in the 1920s and 1930s might have stayed low for a long time but for government action. At one point, the Texas governor sent the national guard into the fields of East Texas to force producers to shut down. Later the state passed laws imposing output limits. These constraints were backed up by the Roosevelt administration in the 1930s as the federal government prosecuted anyone attempting to ship crude oil produced in excess of state limits (or the products refined from it) across state lines.


The experience of five crude oil price cycles since 1970 emphasizes the commodity markets’ need today for a regulator or for robust institutions that can help moderate price drops. The current oil market has enjoyed enormous support from strong institutions that were not available in prior cycles. Indeed, but for two critical ones—futures markets and central banks—prices today would be near $1 per barrel rather than $40. This week's report focuses on this topic in conjunction with the upcoming meeting of oil-exporting countries in Doha.


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