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Comment by hanwenn | Hacker News Reader

"Where does all that additional money go, and who benefits from it?"

Doesn't reduced overall supply usually mean that the total amount of money (price * supply) also reduces? ie. in total, there is no additional money.

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It depends on the price elasticity of demand. When it's 1 - that is, when a 1% change in price results in a -1% change in demand - then any change in supply reduces the total amount of money spent on the good. If demand is more inelastic, then increasing price will increase total spending. Oil is a particularly inelastic good.

Price change and supply are not linear. I see the price of oil as largely a human decision, based on how much people are willing to pay for oil and its derivatives, or buy oil for thinking they can sell it for more later. It's linked to supply/demand but not directly controlled through a formula. You can look at the profit statements of oil companies around the world to verify that there is indeed much more money being made when supply is limited.

that doesn't negate my point: with the attacks in the middle east, Saudi Arabia can't export its oil, and therefore, they are not going to make any money. Norway, the US and others, may get a windfall because they can charge more, but does that compensate for the loss of profit in SA ?

Because it's so critical, money will be redirected into oil from other less critical spending.

This won't increase the amount of oil available.

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