Fair price of oil

The 12-nation Organisation of Petroleum Exporting Countries (Opec), which pumps 40 percent of world oil supplies, has been advocating the idea of fair price of oil in the international market for a long time.
At a recent energy conference in Geneva, Saudi Oil Minister Ali Ibrahim al-Nuaimi said that an "ideal" price for oil in the current environment would be between 60 and 75 dollars per barrel to allow minimum viable levels of investment in the industry and warned that a "pre-mature shift" towards renewable energy sources could jeopardise essential investment in oil and an economic recovery. Forty dollars per barrel were not enough and "todays low prices are just as unsustainable as soaring prices".
Diminishing investment in fossil fuels, according to the Minister, could impact their ability to provide the energy that will be needed when the economy turns around. The climate of uncertainty produces a strong sense of investment risk for producers. Talking about alternative sources of energy, Nuaimi stated that while the days of easy oil were over, the days of oil as a primary fuel source were far from over.
He argued that while an "inclusive mix" of fossil fuels and renewables was essential to meet future needs, many alternatives to oil and gas were still costly and unproven, and fossil fuels were expected to account for 80 percent of world energy needs for years to come. Earlier, in a regular meeting in Vienna, Opec had refrained from cutting output quotas and delayed such a decision till an extraordinary meeting to be held on May 28, 2009 to assess the market situation. This was touted as a measure which indicated Opecs desire not to worsen a vicious global recession.
The arguments for fair price of oil are not new or unexpected, especially at a time when the oil prices are down. These are voiced more loudly and consistently by the oil producers when faced with a bearish market and are usually forgotten in a rising market. The truth of the matter is that while such a reasoning would look to be quite convincing to an ordinary person, there is nothing like a fair price of a commodity in the actual world.
In the world market as well as in a free market economy, the prices of various commodities are determined primarily by the forces of supply and demand, all the players in the market including sellers and buyers aim at maximising their own profits and oil is no exception to this rule. As such, the idea of fair price in a certain range can only be interpreted as utopian or a kind of fairy tale. The anxiety of the oil producers about the current low level of prices is, however, understandable.
They were happy and largely unconcerned when the prices of oil were hitting almost dollar 150 per barrel but their foreign exchange earnings have gone down sharply since then, threatening their consumption and investment plans. The fact of the matter is that Opec itself is indulging in monopolistic practices by forming a cartel and regulating oil supplies in the international market. The main reason driving down the oil prices in the international market at present is the global recession which has reduced demand considerably. As soon as this phase is over, prices would again start climbing, possibly beyond the range specified by Nuaimi.
So far as Pakistan is concerned, its policy makers should not be lulled by such ideas but strive constantly to improve its current account position so that the country is able to bear the shock of rising oil prices if and when it comes. At the same time, efforts should be made to explore alternative sources of energy and gradually reduce its dependence on fossil fuels. Anybody could easily imagine the consequences for the country if the earlier trend of rising international oil prices had continued uninterruptedly. Unfortunately, there is hardly any compassion or fair play in the real world when self economic interest is involved.