http://blogs.salon.com/0002007/2006/01/23.html#a1415Since the 1970s, the price of oil has been set, not by OPEC, but by buyers and sellers through two independent exchanges in New York and London. The US has been able to substantially control this price through most of the intervening period because (1) all three exchanges quote the price and transact only in $USD, so the US does not need to worry about the free-fall of its currency interfering with their ability to buy, (2) oil companies and oil nations friendly to the US have been overstating their reserves in an effort to counter the growing evidence that global production is about to peak, and (3) the OPEC countries have substantial leeway in adjusting production levels to 'moderate' prices. Recently, OPEC producers friendly with the US have been producing well beyond sustainable capacity, using forced water injection and other methods in their wells to increase oil flow per day beyond sustainable levels in an effort to keep the market price from rising too quickly. When you control the currency of the transaction, the information flow on production and reserves, and the rate of production, you pretty much control the price, at least in the short run. And when your economy is utterly dependent on foreign oil, you are really motivated to control that price.
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Neither of these massive market distortions is sustainable, of course. And there is a rash of new information suggesting that, for oil at least, the end of this devil's bargain is near:
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On Friday Kuwait confessed that its actual oil reserves, which previously accounted for 10% of the world's total, were less than half what it had previously reported.