Organization of the Petroleum Exporting Countries

Organization of the Petroleum Exporting Countries

James C. Kellerman

Liberty University

2/26/2018

Organization of the Petroleum Exporting Countries

Key Term and Why You Are Interested in It

The Organization of the Petroleum Exporting Countries (OPEC) is a very intriguing subject. Since I work in contract maintenance for a chemical company in the petroleum industry, I thought it would be good to research more about how OPEC affects supply and demand in current markets. OPEC has had a strong foothold in the past on the control of oil. Throughout the years, the United States has become less dependent on the market demand that OPEC controls due to domestic offshore drilling and shale fields. This seems to have helped the United States moderate the effect of OPEC supply controlling.

Explanation of the Key Term

The Organization of the Petroleum Exporting Countries (OPEC) is an organization of 14-member nations that account for almost half of the world’s oil supply. OPEC was started by 5-member nations in the 1960’s to provide stabilization of the world’s oil market. As OPEC grew, they became a major controller of the oil supply and could control price through effective supply and demand strategies. This has caused many to call OPEC a cartel due to their ability to work together at reducing market competition from other world countries. This has caused other countries to look for alternative sources of fulfilling their individual oil demands.

Major Article Summary

In Crude oil: market trends and simulations point toward stable equilibrium by Aleksandar Zaklan, Dawud Ansari, and Claudia Kemfert, discuss the current state of the global crude oil market to assess the effects of oil production on pricing. They analyze both OPEC’s production effects on the market and the increased shale production in the United States to determine climate of the worldwide market.

The current pricing of oil has moderated since 2014. Prior to this, there were many global events that had caused oil pricing to rise to above $100 per barrel. Currently, it has stabilized between $40 and $60 per barrel. This is due to a high output in the oil markets between 2014 and 2015 which has kept the world supplied (Zaklan, Ansari, and Kemfert, 2017). OPEC has maintained a steady and stable rising in production though 2016 but has been working with non-OPEC countries on strategies to curb output through 2018 that will limit the growth rate. This is a balancing act for overall growth of OPEC. If they were to cut oil production, they could drive the cost of a barrel of oil up. In turn, by moderating production with a slow increase they can continue to gain more market share over the years.

The United States continues to increase production from the shale oil fields. This has increased production is being driven by improved efficiency in shale oil production. The United States plan to increase production here is to reduce foreign dependency on the oil market. Shale production has provided the opportunity to reduce the control that OPEC producers have over the global market.

The moderating of the oil price is controlled by OPEC and the United States. With the expansion of shale production, the oil sector has reached an equilibrium in the market. Even if OPEC chose to curb production the change in price of oil would be slight compared to previous years and the United States production would offset the change.