Free Market Would Keep Oil Prices Low

One way OPEC could stabilize and maybe even increase oil prices back up to, say, $40 a barrel like in the 1970s would be to lobby Congress to again put price controls on domestic oil production like President Nixon did in 1971.

Nixon’s oil price controls at that time permitted OPEC to set world oil prices, since domestic U.S. producers stopped drilling. They felt it prudent to leave their oil in the ground, hoping for higher prices in the future--and they were correct.

By the late ‘70s, OPEC had succeeded in hiking prices close to $40 a barrel, and there was talk of prices climbing to $100.

In 1979, President Carter ended oil price controls on a two-year phaseout program. His decontrol act launched a tremendous U.S. oil-drilling boom, especially in Texas.


President Reagan completely ended oil price controls within a week of taking office in 1981. With this decontrol, oil prices by the mid-1980s fell to a low of $10 a barrel, close to where the price is today.

It might seem odd that oil prices would skyrocket with price controls. But it must be remembered that only domestic oil prices were controlled, which created the opposite from the intended results of keeping prices down. With domestic production shut down, OPEC could set prices as high as the market would bear, and domestic producers were rooting them on since they felt their oil in the ground could someday be pumped out at a higher price.

The U.S. government interference in oil pricing proved a complete disaster, resulting in the transfer of nearly a trillion dollars to the oil-producing countries. They got rich and the rest of the world inherited rampant inflation.

If the government will let the free-market mechanisms work, oil prices should remain low for decades to come. Prices will only rise eventually, say over the next 100 years or so, when world oil reserves start running out. By that time, alternate energy technologies such as solar and fusion will be available.



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