Publications: The Petroleum Economics Monthly

A (Much More) Competitive Market (October 2015)


The monopoly power that multinational companies and then a group of oil-exporting countries once used to control the oil volumes supplied to market and hence the price has ended. Oil is the new corn. The "prize" so often discussed by historian Daniel Yergin's followers turns out to be made of maize, not gold. Recent efforts to control supply and reap large profits have failed. For agricultural commodities, production in excess of demand combined with high inventories guarantees low prices and pain. Oil in 2015, to repeat, is no different from any other agricultural good.


Today, oil producers have no hope. Stocks are forty percent above normal levels thanks to quantitative easing. Much of the oil is held by nontraditional owners, meaning they are not part of the cartel. The high stocks, the availability of large incremental supplies at relatively low prices, and the need to produce now or forever leave the oil in the ground have converted oil into an everyday, ordinary commodity. Prices will fluctuate over wide ranges in the future, possibly ranging from single to triple digits. This volatility will be identical to what we see in agricultural markets.


Today, the ability to "control" oil is gone, probably for good. The world has changed. This report details the key factors that have contributed to the market’s transformation.


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