Hamilton on the Main Reason Oil Prices Are High

Michael Giberson

Saudi oil minister Ali al-Naimi said  there was “no rational reason” for current high oil prices, since there were enough supplies and all consumers were getting oil.

James Hamilton rises to object, “if oil prices were lower, the world would want to consume more than is currently being produced.” Hamilton examines what the quantity demanded might be at lower prices and concludes we’d need about an additional 15 million barrels a day in supply to meet consumer demand at oil prices of a decade ago.

So the higher price is encouraging some consumers to reduce their consumption while urging suppliers to increase, if they can, the amount of oil they bring to the market.