World Economic Roundtable contributor Jonathan Chanis, who is
Managing Member at New Tide Asset Management, argues in a new academic
paper for
American Foreign Policy Interests that the global flow of crude oil does not operate in a "free market."
Chanis
writes: "Analysts assume that crude oil moves internationally as if it
were traded in a ''free market.'' They often repeat phrases such as
''oil always moves to the highest bidder,'' or ''oil is fungible and
where it comes from does not matter.'' But global petroleum markets are
not ''free.'' They are severely constrained by many factors, including
logistical limitations, increasingly non-interchangeable types of crude
oil, and limitations on where companies can produce oil and to whom they
can sell it. Most important, the markets for petroleum are distorted by
the practices of Saudi Arabia and the Organization for Petroleum
Exporting Countries (OPEC)."
"A misunderstanding of the above
factors can lead to, among other misconceptions, an underestimation of
the role of Canada in promoting U.S. energy security and an exaggeration
of the ability of markets to protect consumer or U.S. national
interests, both before and after supply disruptions. A more realistic
understanding would recognize the imperfect hold markets have on global
crude oil allocation and would stop confusing the theory of "free
markets'' with the reality of international politics and oligopoly."
Crude Oil is Not Fungible by Jonathan Chanis in
American Foreign Policy Interests journal.
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