FRB Dallas: Crude Awakening: Behind the Surge in Oil Prices(Economic Letter, May 2008)

Although OPEC's excess capacity has rebounded from its 2005 low, the gains are largely in heavy crude oils that can only be processed in specialized refineries. Those facilities are running full bore, so the added supplies aren't relieving a tight market. The latest evidence also suggests OPEC is now restraining its output.

Aren't they contradicting themselves? They say that the increased production in in heavy crude, where the bottleneck is - at present - the refining capacity. Doesn't that mean that OPEC's increase in spare capacity is not due to voluntary "restraint"?

While some warn that oil production has peaked--or will soon--most industry experts contend that oil resources are plentiful; it just takes time and money to get them out of the ground and into the market.

Can you not agree to both statements? These are not either-or.

So far, new supplies haven't materialized quickly enough to keep up with growth in world demand, largely because various hurdles have slowed their development. Oil resources, for example, are concentrated in countries with state-run oil companies or little economic freedom. Where market signals aren't allowed to work, incentives to boost production may be muted.

How about the possibility that optimal long-term management of finite resources would include not producing full-on in the short term?

The article reads very well, and it discusses both futures and spot markets and the IEA's projections, with a numebr of nice charts that Jerome will like.

Thanks for the pointer.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes