Thu. Jan 27th, 2022

Commentary High oil prices are a symptom of economic and monetary imbalances, not a consequence of Organization of the Petroleum Exporting Countries (OPEC) decisions. Throughout history, we have seen how OPEC cuts have done little to elevate prices when diversification and technology added to rising efficiency. Likewise, OPEC output increases don’t necessarily mean lower prices, let alone reasonable ones. OPEC helps but doesn’t solve price issues, even if they would probably like to. The problem in the oil market has been created by years of massive capital misallocation and underinvestment in energy—the result of extremely loose monetary policies directed by governments that have penalized capital expenditure on fossil fuels for ideological reasons. Misguided activism and political nudging in the middle of monetary injections have created bottlenecks and underinvestment that hinder both security of supply and a technically feasible competitive energy transition. Massive injections of liquidity have caused a double side …

Author: Daniel Lacalle

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