The Need for Cooperation between Consumers & Producers – and the lessons not learnt. By Adnan Al Janabi & Luay J. Al Khatteeb
March 23, 20130
Oil price volatility has always created pressure upon both developed and emerging economies. High oil prices have been blamed for economic downturns in the global economy. Oil producers have suffered widely fluctuating incomes. Price volatility has worsened since 2000 for a variety of factors such as geopolitics, speculation, terrorism, natural disasters, revolutions, economic growth, recession, and accidental disruptions to supply. Price volatility makes planning for both producer and consumers difficult and results in an inefficient allocation of resources in the industry creating bottlenecks in production. It heightens the investment risk putting off much needed capital investment.
J.M. Keynes3 advocated intervention in commodity markets claiming that it was in the interest of both producers and consumers and would improve the allocation of resources. In the current dynamic world the increased uncertainty of oil prices is detrimental to economic development and growth.
The growth in supply and the emergence of the possibility of Iraq becoming an additional swing producer begs the question is it now time for price stabilisation to be implemented?
This paper looks into the theory of commodity markets stabilization, accounts for the increased price volatility via highlighting the emergence of more demand and supply variables during 2000-2012, and examines the possibilities of having producers and consumers cooperating in their common interests; also to evaluate the possibility of financing spare capacities to stabilize prices.