Essay on Understanding OPEC: An Economic Analysis

The Organisation of the Petroleum Exporting Countries (OPEC) aims to coordinate and unify the petroleum policies of its Member Countries and ensure the

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.

The United States consumes more than 25% of the world’s petroleum products which is a large percentage, considering only 3% of the world’s oil reserves are produced by the United States. Given the demand for petroleum products such as gasoline, understanding why Crude oil prices have skyrocketed in recent years, is not hard. According to the article “Ending America’s Oil Addiction,” the surge in crude oil prices can be reduced in large part to the simple concepts of supply and demand. (Cooper, 2008)

In a revealing article by George Perry (2001) the author discusses the economic impact that a disruption in the oil supplies would have on world oil prices. He states “Currently 28 percent of the world's crude oil comes from the Organization of Arab Petroleum Exporting Countries (OAPEC) consisting of Arab Muslim nations, some of which are not part of the OPEC cartel. The governing regimes in all these countries are at some risk [due to the war on terrorism].” He goes on to state that in a worst case scenario the economic consequences of oil supply disruption would be “oil prices rise to $161 per barrel driving gasoline price to $4.84 per gallon. The increase in the nation's bill for products of crude oil rises by about 10 percent of GDP, which adds perhaps 15 percent to the inflation rate in the first year. And the recession is the steepest and deepest of the postwar period, with GDP declining nearly 5 percent the first year.”

When trading oil it pays to keep an eye on the major consuming nations, as any increase or decrease in usage is sure to have an impact on the commodities performance. Something that is also worth monitoring – with this tying into the performance of major consuming nations – is OPEC, the Organisation of the Petroleum Exporting Countries. This international organisation works to ensure both the stablisaiton of the oil markets, along with coordinate and unify petroleum policies. Current members of OPEC include mass-producing oil nations (13 in total, including Saudi Arabia, UAE, Iran, Iraq, and Qatar). Considering that OPEC has the power to decide policies related to the production and sale of petroleum oil, it certainly has the power to impact the price, flow, and distribution of oil worldwide.

Our world economy depends upon petroleum; petroleum, in fact, has shaped the modern world. It has dictated production technologies and methods. It has facilitated the emergence of a worldwide transportation network. It has allowed cites to grow and expand, and determined the spatial landscape of regions. Due to our great need for petroleum, the scope of OPEC¡¦s power surpasses our prowess as an economic superpower, considering OPEC regulates the output and the price of oil from their reserves.

Within the last year, oil prices in the United States have dropped significantly. As oil drilling in the United States has reached its highest level in over 30 years, consumers are reaping the benefits. Among these gains are record-low prices at the pump, and cheaper oil to heat homes. However, oil prices did not just drop on their own; multiple factors contributed to the fall. Increased domestic production, declining global demand, and competition from other oil-producing nations had led to rapidly dropping oil prices across the United States.

The OPEC nations showed the world that their huge crude reserves could be wielded as a political and

Member nations of OPEC wanted high oil prices to support the fortunes of the ruling wealthy classes and to provide huge public benefits for a the member nation's poverty stricken and unemployed population (Steltzer, 2000).

According to current estimates, more than 80% of the world's proven oil reserves are located in OPEC Member Countries, with the bulk of OPEC oil reserves in the Middle East, amounting to around 66% of the OPEC total (OPEC Share of World Crude Oil Reserves, 2014). Competition amongst the U.S. and the Middle East has never reached this level before. There is a constant tension between the two countries and refuse to collaborate in dividing the market share equally. Furthermore, as both nations refuse any bipartisan agreement, there is no limiting the production of oil. Each nation is looking to drive out competition by any means. What they don’t realize is if they cooperated and reached an agreement amongst the international community, oil will remain profitable just as it was a few years ago. Though, this is unlikely to happen any time soon, but will eventually cause Saudi Arabia and other Middle Eastern countries to take a drastic decision when their main source of capital plummets due to the current price of oil. Profits are no longer seen in the oil industry. The Price of oil has been selling at around $50-$60 per barrel, not enough to cover production cost. The United States is able to withstand any contraction within the oil sector, as their financial portfolio is diversified, not solely reliant on the price of

Oil-The article”OPEC #1”explains the oil prices.The Oil of the Middle East is the price of oil has fallen by nearly half in just six months.Anyone who buys oil or gas is happy because the prices are low.Car and truck drivers, airlines, and shipping companies are all happy because they don't have to spend as much money on gas. Oil companies are not very happy. They are losing money.A barrel of oil now costs $58 and last summer it was $107.Oil prices have gone down and people are happy,at least some of

Graph 1 represents the major companies and nations which product crude oil. It also represents how the bent crude oil price has fluctuated from 2004 until 2014. From 2004-2008 it is evident that there is a steady rise in oil prices, from $35-$150 per barrel. Towards the end of 2008 it is evident that there is a significant drop in oil prices, from $150- $32 per barrel. This is due to the Global Financial Crisis (GFC) where the stock market collapsed on October 28, 1928, through this came the rapid decrease in oil prices. From 2009-2011 there is a steady increase in oil prices which was caused by the stock market repairing itself from impact of the GFC. In 2013 we are able to see declining oil

B. The Organization of Petroleum Exporting Countries, also know as OPEC, refuses to cut production even though they are losing money in the process. a. “Russia loses about 2 billion in revenues for every dollar fall in the oil price (Bowler).” b. One of the countries in OPEC , Saudi Arabia needs the oil price to be about $85 to make money, but they continue to keep prices low to drive away the competition (Bowler). Transition: We know now why the prices are low but how are they affecting people II.

The various ties between the Organization of Petroleum Exporting Countries and the United States of America has always ebbed and flowed. American-OPEC relations have been strained by events such as the increase in oil prices in 1973 in retaliation of the American support of Zionist terrorists that the U.S. would call “Israel”, but now, the various economies of OPEC nations themselves could be under threat.