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Saturday, May 30, 2015

Capitalism vs.socialism on oil

Tim Mullaney at Market Watch is chortling. The House of Saud (and now, Iraq) are trying to flood the market with cheap oil, which is costing them -- in the case of Iraq -- "money they don't have." The Arab plan is to drive down the price, hoping to get U.S.oil companies to give up on hydraulic fracturing.

It may be having the opposite effect.

From Tim Mullaney: "OPEC’s endgame — push oil to $40, freeze U.S. supply, and wait for oil to hit $90 or $100 again — can’t work. There’s no place on that spectrum where OPEC covers its overhead — and it would have to cut capital spending, making OPEC less competitive and relevant, while making local politics even more volatile and unstable. Ask Iraq how smart that seems in Ramadi just now."

The problem is OPEC is pitting capitalism vs. socialism, and the advantage goes to oil companies. Stare-run operation are inefficient because politicians use them as patronage jobs.

From Tim Mullaney: "It costs only a few dollars a barrel to get the stuff out of the ground, but last year Goldman Sachs estimated Iran’s total break-even cost at $133 per barrel. Russia’s is $107, Iraq’s is $101. And so on."

He erroneously blamed social spending: "Since Arab states boosted social spending after the 2010 Arab Spring, the effective break-even on oil that props up regimes is extremely high."

That's baloney. There was no Arab Spring in Iran, Russia or Iraq. The high costs come from being government-run.

Meanwhile American companies can make money on $60 a barrel oil -- and this comes despite helping fund "Arab Spring" in the USA. America has the largest redistribution of wealth in the world. $2 trillion a year are transferred from private companies and individuals to Medicaid, Medicare, food stamps and a host of other social spending programs.

Mullaney's pretty much a garden variety, tree-hugging, carbon-dioxide-fearing journalist. But he seems to have stumbled on a truth about capitalism vs. socialism. Keep flooding the market OPEC and Russia. We dribk your milkshake, and still have ours to fiish.


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