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.