Market Process and Structure

The inherent instability in the oil industry is partly caused by counter-cyclical conditions in the separate stages of production, but also by high fixed costs, technical constraints, the variety of costs between wells, incomplete homogeneity of crude oil, and the inflexibility generated by joint production in the processing phase. Supply and demand, although quite inelastic in the short-term, have proven to be more elastic in the long-term. These characteristics have proved advantageous to cartel formation in the short-run, but a limitation on their durability in the long-run.