The Influence of OPEC Essay

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The Influence of OPEC

The Organization of the Petroleum Exporting Countries, OPEC, was formed in Baghdad, Iraq in 1960 to coordinate and unify the policies of petroleum exporting countries. According to OPEC, their main objective is to ensure the “stabilization of oil prices” and the securing of a steady income to oil producing nations. In order to achieve this objective, the OPEC member nations meet at least bi-annually to decide whether to raise or lower their collective oil production in order to maintain the prices they deem as “stable.” The main factors that are considered when formulating petroleum policy are the forecasts for economic growth rates and the projected demand for petroleum. (www.opec.org) Exemplary of the
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All three were caused by unrest in the Middle East with OPEC not increasing quotas enough to compensate for the effect of the unrest. In the early 1970’s, oil prices spiked as Arab oil producers embargoed oil deliveries to countries friendly to Israel. Later on in the 1970’s, prices soared again as Iranian oil workers went on strike in support of the Islamic Revolution, with these high prices continuing into the early 1980’s during the Iran/Iraq War. Finally, another major price spike occurred, although not as drastic as the prior two, when Iraq invaded Kuwait. This price spike was mainly due to the loss of Kuwaiti oil exports because Iraq had burned their fields combined with the imposition of sanctions on Iraqi oil exports. Although Saudi Arabia increased their production substantially to compensate for the reduced supply, prices still rose. During these time periods, the United States were paying over $30 per barrel for crude oil. (www.platts.com/features/gasoline)

The total production in barrels per day of petroleum by the OPEC countries has been steadily declining from the peak of nearly 30 million barrels per day in late 2000. In 2001, OPEC production in barrels per day declined to 27 million. (www.petroleumworld.com) This adds up to nearly 10 billion barrels annually being produced by the OPEC nations. (My calculation) Of these 10 billion barrels produced

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