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Editor's note: Hey, about that price of oil ...

Gee, have any of you been asked that one before?

Supply and Demand, That Is ...

'Usual Suspects' Control Oil Price

Ok, ok ... By now we're all just a little bit tired of telling our friends and neighbors that not only are we not in charge of oil prices, we also don't have a big red tail and carry a pitchfork.

We're also assuming that you might like to have a short, non-confrontational response to the question ready because, let's face it, you'd like to actually enjoy a party that you attended for a change.

So the next time the spotlight's bright white lands squarely on you, try this answer on for size.


For the past several months the EXPLORER has offered this column as a service to our members -- it's our way of helping you prepare yourself to educate the public about your profession and industry. They have questions, and we provide answers here that are so basic even THEY can understand them.

 

 

Question of the month:

Who really controls the price of oil, OPEC or the big oil companies?


Short answer: None of the above.

Big Oil and the Big O can't control the price of oil, even though OPEC really, really wants to. Oil prices are set by supply and demand in a global market.

Many people think OPEC controls oil prices, however, for at least three reasons:

  • OPEC certainly acts like it sets the price of oil. It holds meetings and issues press releases and sets "quotas" for its members.
  • Oil prices often go on bumping up and down like OPEC never existed.
  • It's obvious that the world's biggest oil producers can increase price by curtailing production.

Here's the catch: Any producer big enough to manipulate the market by slashing production can't benefit from the resulting higher price.

And any producer big enough to crash prices by increasing production will suffer from doing so.

If any country could control oil prices, it would be Saudi Arabia. This is why it can't.

  • People assume that if OPEC didn't exist, all major producers would open the spigot and produce oil at the maximum possible rate, which makes no sense whatever.

Oil producers behave exactly like producers in any other industry. When inventories are low and prices are high, they produce more. When inventories are high and prices are low, they produce less.

Nobody needs OPEC to tell them to do that.


BONUS Q&A

What is wet gas?

Short answer: You had to ask, didn't you?

We know what dry natural gas is, more or less. Dry gas contains an insignificant amount of liquids and is at least 95 percent methane.

Wet gas can't be defined as easily.

Typically, we call gas "wet" when it contains condensate -- very light hydrocarbons that exist as gas in the reservoir and as liquid at the surface.

Natural gas also is called wet gas when it contains some quantity of condensable hydrocarbons that can be sold as natural gas liquids, like propane and butane. Gas that contains more than three-tenths of a gallon of liquids per 1,000 cubic feet is considered wet.

But sometimes wet gas refers to gas that contains a substantial amount of water or water vapor.

Definitions of wet gas vary around the world. In the United States, different states have different guidelines for distinguishing wet gas and dry gas.

One definition of wet gas might be, "Natural gas that contains a significant amount of condensable hydrocarbons or moisture."

You get to decide what a "significant amount" is.

-- DAVID BROWN

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