Church House's Mahon: Oil-producing states in a 'prisoner's dilemma'

Since the start of the year, the market has become exceptionally troubled by the price of oil. Although a falling oil price has historically been seen as a good thing, the severity of the decline has left many wondering about the possible repercussions.

We believe this may be a misinterpretation of the situation and we may be at risk of talking ourselves into a crisis unnecessarily. The oil market was previously very controlled, but the cartel that successfully managed the price has been broken and the oil-producing states find themselves in something of a 'prisoner's dilemma': desperately needing the US dollar revenues from sales, so producing as much as they can, but depressing the price as they do and therefore needing to pump more to keep their revenues high. The market goes through these phases periodically. A little while ago, ...