Essay on Opec and the market for Crude Oil

Submitted By mjkeller
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Pages: 5
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Jeff Franks
Principles of Microeconomics
7/27/11
The Market for Crude Oil
Crude oil, also known as petroleum, is the “black stuff” that comes out of the ground when drilling for oil, is made up of a combination of elements such as carbon, hydrogen and sulfur; deriving from the remains of animals and plants that existed millions of years ago; giving rise to the term “fossil fuel”. Although crude oil is of little use to anyone in its purest form, refining it can produce energy; which in turn develops gasoline, diesel fuel, kerosene, as well as other products. Finalized petroleum products will eventually end up in places like gas stations and factories all across the world.
Oil, being a “commodity”, is a product that is generally the same no matter where it comes from or who produces it. The definition for commodity as stated by Dictionary.com is, “an article of trade or commerce, especially a product as distinguished from a service.” Since oil is a commodity, this is why the prices of gas are always influcuating; depending on the worldwide supply and demand. An example of this would be after the big BP oil spill in the gulf coast and how the price of gas soared through the roof, still affecting the price of gas today.
“OPEC”, also know as the Organization of the Petroleum Exporting Countries, is a permanent intergovernmental organization, created at the Baghdad Conference by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela on September 10-14, 1960 (www.opec.org). As stated on opec.org, “OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.” Breaking new ground in the early years of the decade, an OPEC oil price band mechanism helped strengthen and stabilize crude oil prices. However, a combination of market forces, speculation and other factors altered the situation in 2004, increasing the price of oil and amplifying volatility in a well-supplied crude market. Being used as an asset class, the prices of oil soared to record levels in mid-2008, before collapsing in the emerging global financial turmoil and economic recession. In order to address the economic crisis, OPEC became prominent in supporting the oil sector as part of global efforts. OPEC established stable energy markets and sustainable development and the environment as three guiding themes; adopting a comprehensive long-term strategy in 2005, during their second and third summits in Caracas and Riyadh in 2000 and 2007.
According to ftp.eia.doe.gov; Crude Oil and Total Petroleum Imports Top 15 Countries, in April 11, 2011, the top five exporting countries accounted for 68 percent of United States crude oil imports in April while the top 10 suppliers fulfilled approximately 88 percent of all United States crude oil imports. The top 10 suppliers of crude oil for the United States in April 2011 consisted of Canada, at the top with 2,079 thousand barrels per day, Saudi Arabia (1,089 thousand barrels per day), Mexico (973 thousand barrels per day), Venezuela (902 thousand barrels per day), Nigeria (856 thousand barrels per day), Iraq (519 thousand barrels per day), Colombia (462 thousand barrels per day), Russia (288 thousand barrels per day), Angola (277 thousand barrels per day), and Brazil (210

thousand barrels per day). From March 2011 to April 2011, the average total of crude oil imports per day decreased by 318 thousand barrels from 8,715 thousand. In regards to whether the government should intervene with the crude oil market or not, I say YES! We have billions of gallons of oil sitting under the ground in Alaska while millions of Americans are struggling to get to their jobs or children on a daily basis. I do understand that there are a bunch
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