Does the Oil Equilibrium Price Exist?
Many predictions and explanations are offered to the price spike in oil; speculation, rising demand from newly developing countries (China and India) and others. Many believed that the price will drop or reverse its present trend after it reaches a certain threshold. When this is reached, it is assumed that the demand will drop, as the price will make the usage less affordable to normal folks. Thus, the price will revert to equilibrium and everyone is happy again and the usage will go back to normal, and waiting for another round of spike in the future. This is the standard economic thinking, where the equilibrium plays a role as attraction to the price. However, this threshold level might not exist at all! There are several reasons to this; 1) If oil producing countries or companies are profit maximizing entities, the price charged will not be gradual or continuous as argued by the threshold theory above. Rather, it is more maximizing to set a price at a higher level and let the price
