Jack Janik
Micro Economics
1:00 Class
4/28/17
OPEC and the Oil Market
Oil is a limited commodity with an unlimited demand. Very few nations have the luxury of having their own supply to which they can fulfill their own needs, while other countries clamour for what they can get . The countries with oil realized instead of competing with one another on exports , it would be much more profitable to simply work together and cooperate in their production of oil, rather than compete. In doing this, these countries will then be able to influence the market magnitudes more.
The first steps towards forming the Organization of the Petroleum Exporting Countries, (OPEC) began in 1949. Venezuela and Iran contacted Iraq, Kuwait and Saudi Arabia about
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(OAPEC) is composed by Saudia Arabia, Algeria, Bahrain, Egypt, United Arab Emirates, Iraq, Kuwait, Libya, Qatar, Syria, and Tunisia. The organization placed an embargo on the USA over their support of Isreal in the Yom Kippur War. This is an example of economic warfare which allowed them to express their outrage and disagreement with USA without declaring war. They simply use economic measures to stifle the economy of their enemies. The same tactic was implemented when Russia invaded Ukraine recently as well, leading to their currency’s significant inflation.
The result of the embargo was the oil crisis of 1973, during this period in time the cost of oil increased dramatically, In the United States, prices went from $3 a barrel to $12 a barrel. This tactic was repeated numerous times thus the oil countries continued in successfully harming the US economy. In 1979, an oil crisis occurred, Iran had a revolution which lead production to decrease, though it was only only marginally . However, due to mass speculation of price increases and shortages, many people started buying more to stock up which lead prices to inevitably skyrocket once again.
After 1980, oil prices decreased for first time in twenty years. As the 90s approached, oil exporting countries expanded production. The USSR became the top producer, and the US ramped up alaskan oil, causing a loss of power for OPEC. One may wonder what exactly is OPEC and who
Energy Crisis (1970’s) states that the crisis officially began when the “Organization of Arab Petroleum Exporting Countries (OAPEC) reduced their petroleum production and proclaimed an embargo on oil shipments to the United States and the Netherlands, the main supporters of Israel.” They did
They formed the Organization of the Petroleum Exporting Countries, or OPEC. Since the OPEC was instated to protect the interests of oil producers, it could be seen as an example of regional integration. The OPEC is widely considered, throughout the world, as a cartel. This would be an intellectual misconception. The concept of cartel would consider oligarchies limiting competition and monopolies increasing prices. Oppositely, many international oil producers are not members of the OPEC. These non-members saw a fourfold increase in the oil prices, during the 1973 oil embargo. In A history of the modern Middle East, William L. Cleveland and Martin Bunton stated that the immediate objective of the OPEC was “to utilize the collective bargaining power of its member states to pressure the Western oil companies to increase oil prices.”. However, the birth of the OPEC did not occur, overnight. In 1947, the Venezuelan and Iranian delegations held talks in Washington, to coordinate their oil policies. In OPEC: Past and Present, Abdul Amir Q. Kubbah stated that the Arab league had a project of creating an “association of Arab oil-producing countries.”, since 1945. The first OPEC-type grouping occurred in 1953, when Iraqi and Saudi delegates joined forces. The agreement between these two states was the first to involve cooperation from both governments. The Arab League held a summit in Cairo, in 1959. During that summit, “views have been exchanged concerning the
Currently Saudi Arabia is one of the leading producers of oil in the world. However, it is losing its foothold on the market. Many countries, like North America, are increasing their oil production and are looking for ways to become less dependent on foreign oil. The increased competition has caused oil prices to decrease. By producing their own oil, countries not only will increase their revenues, but will also reduce their need to rely on foreign oil. By reducing their need foreign an oil a country does not have to worry that their oil supply will be cut off if they go to war.
Oil is the product that each and every one of us use. It can be used for fuel, heating and even cooking. The most often known for unstable price is crude oil or gasoline. According to the The Economist, The main reason for price shifts of oil is oversupply. The oil production in Saudi rose 10.3 million barrels per day. This increase is the effect of a new method that I being applied to oil extraction. This method is called fracking, fracking is where they drill into tight-rock formations then gradually turning horizontal for several thousand feet more. This results to accommodations to multiple oil wells. This new approved method of oil harvesting has raised the productivity gains and reduced the cost of harvesting oil.
In 1973, an oil crisis began when the members of the OAPEC (consisting of the Arab members of OPEC, plus Egypt, Syria and Tunisia) proclaimed an oil embargo in response to the United States decision to resupply the Israeli military during the Yom Kippur War. The embargo happened when 85% of American workers had to drive to work every day. President
The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)
Several oil-countries have been facing economic and political turbulence as a result of the crash in oil prices, and there is disagreement among OPEC as how to handle the situation. (Krauss) While this is happening, America’s oil production continues to rise, as it inches closer to becoming an energy superpower in production and consumption; and countries that depend on their oil exports face recession.
So this also caused an immense hit to the American automotive industry. Although the The oil embargo was lifted in March 1974, although oil fees remained high.
The embargo of oil shipments to the United States by the Organization of the Petroleum Exporting Countries (OPEC) resulted in a widespread national energy crisis which, to some degree, created the economic downturn.
Unlike the 1970s, when the U.S. was held at bay by OPEC withholding oil production for political reasons, the growth of
The price of oil per barrel first excessively doubled, then quadrupled, imposing astronomical costs on consumers and structural tests to the strength of national economies. President Richard Nixon and Secretary of State Henry Kissinger recognised the constraints involving peace talks to end the war and negotiations with Arab OPEC members to end the oil shortage and boost production. Initial discussions between Kissinger and Arab leaders started in November 1973 and culminated with the First Egyptian-Israeli Disengagement Agreement on January 18, 1974. Though a finalised peace deal failed to present itself, the prospect of a negotiated to end hostilities between Israel and Syria proved sufficient to convince the OPEC to lift the embargo in March
As a form of retaliation the Arab countries members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo against the United States, this was also extended to other countries supporting Israel like Portugal, the Netherlands and South Africa.
However, standing up for your allies is the mark of a strong country. Therefore, a stronger measure to reduce the impact should have been put in place. America was one of the most dependent countries on oil and had very little capabilities to produce the vast amount of quantities that the citizens demanded. Instead of being proactive and attempting to reduce their dependency US was re-active. Polices and clean energy solutions were not perused until after the embargo. This resulted in a much longer shortage of fuel than there needed to
By the 1970’s, America had become increasingly dependent on fossil fuels such as oil. Oil was used for many things such as: gasoline. While consumer use of gas was rising, the domestic production of oil was declining. To counter this, America had to rely heavily on importing foreign oil, but this proved disastrous. In 1973 America got involved in the Yom Kippur war. We played the role of resupplying Israel in their fight against Egypt, Syria, and the Soviets. Therefore, the Organization of Arab Petroleum Exporting Countries (OPEC) drastically increased the price of oil and placed an embargo on oil being sent to the United States. The cost per barrel of oil quadrupled. Americans were hit with augmented fuel prices and less available fuel.
The oil industry has very clear players, there are countries that consume the most of the oil production and there are countries that produce almost all oil. On the side of the biggest oil consumers are the US and Europe and on the side of the greatest Oil producers are countries like Saudi Arabia, Iran, Iraq, the United Arab Emirates and others. The Oil producers saw an opportunity to have major power and influence the price of oil by establishing an organization, so they unite and created the OPEC (Organization of the Petroleum Exporting Countries). As a counter measure Oil Consumers decided to create also an organization, called International Energy Agency to represent their interests. Today the