Posts Tagged ‘OPEC’

An Oligopoly is…

Thursday, June 30th, 2011

An oligopoly is a situation in which a small group of organizations dominates a particular market. The actions of these individual “oligopolists” affect one another and can collectively influence prices and production in the marketplace.

Oligopolies can exist both intentionally or unintentionally. For example, Apple and Dell computers dominate the market for laptops because they tend to sell more products than their competitors. But they’re not working together, so the dominance is unintentional. On the other hand, OPEC member countries have joined together and formed a cartel to intentionally dominate the oil market and keep prices high.

OPEC is…

Tuesday, May 24th, 2011

OPEC stands for “Organization of the Petroleum Exporting Counties.” It is a cartel made up of 12 countries: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

These countries produce much of the oil that the rest of the world buys, so they’ve banded together to ensure that everyone receives a fair price for their oil. The oil ministers of the member countries meet regularly in Vienna to discuss oil prices and production.

Saudi Arabia Reacts to Your Disinterest by Playing Hard to Get

Thursday, April 21st, 2011

oil-barrels.jpg
(photo credit: ezioman)

Let’s see if we can explain this one:

- The laws of supply and demand say that when supply of a particular product is low, its price goes up. And when consumer demand for that product is high, prices also go up.

- The opposite is also true: low demand = low prices; high supply = low prices.

- So when the oil minister of Saudi Arabia says that OPEC is cutting down on oil production because there’s too much supply in the market, you would think that oil is pretty cheap right now.

Nope. The price of oil is actually higher than it’s been in two and a half years. But it’s not high because of strong consumer demand (apparently demand is quite low since no one can afford it), and it’s not because of low supply (the minister says the market is actually “oversupplied” with barrels and barrels of black gold).

The price of oil is high because of the investors trading it on commodity markets. Because of all the civil unrest/ revolutions/ humanitarian disasters in North Africa and the Middle East right now, they’re worried about whether oil will become harder to get in the future.

So in this case, the price of oil has nothing to do with present-day supply and demand. It’s about a bunch of analysts who think that if a lot of oil-rich governments collapse, tomorrow’s supply might not meet tomorrow’s demand. (Dun dun dun dunnnnnnnnnn!)

Why are gas prices so wildly different around the world?

Tuesday, March 22nd, 2011


(photo credit: Drew__)

If you’ve been in Europe recently, you’ve probably noticed all those extra digits in the price of “petrol.” In the U.S., we’re horrified at the idea of paying $4 a gallon for gas, but in Norway they’ve already blown past the equivalent of $9.

But… why? Is it harder to pump oil in to Norwegian gas stations? Is greater demand among the Norse driving prices up? Not even.

There are a few reasons, but according to Aaron Smith at CNN, it’s pretty much all about the government. Governments can either charge their citizens extra to buy gas (by taxing it) or the pay them to buy gas (by handing out subsidies, which lower the price per gallon).

Taxing gas is useful because the money pays for government programs. And handing out subsidies is useful if you want to keep your population happy. (You see this a lot in oil-producing nations like Saudi Arabia. It’s hard to be angry at the super-wealthy ruling elite when they’re basically paying for your gasoline.)

The moral of the story: Stuff is only worth what someone says it’s worth. $3 or $10, you still need it to make your Hummer go.

How much do you think you should pay to fill up your gas tank?

Gas Is Going To Cost You No Matter What The Rest Of The Economy Is Doing

Saturday, April 25th, 2009

This story explores how, thanks to a small group of powerful individuals, oil prices will remain high despite changes in demand.

  • Though oil prices initially dropped when the global economy began to falter, they have recovered and stayed more or less stable – even as demand for oil continues to drop.
  • This doesn’t really make sense economically – according to the law of supply and demand, prices should be plummeting as unemployment around the world grows and oil consumption slows.
  • But as other markets remain volatile, investors are seeking the relative safety of oil. Oil production is tightly controlled by OPEC, which can keep prices stable by limiting supply when demand decreases, and vice versa.

Facts & Figures

  • In July of 2008, the price of oil rose as high as $140 per barrel. By December, the price had dropped to $33 a barrel. Today, the price fluctuates somewhere between $40 and $50 a barrel.
  • Demand for oil is expected to drop 2.8% this year – to 83.4 million barrels per day.
  • Oil inventories are at their highest level since 1990, but members of OPEC have cut production of new oil by approximately 3.5 million barrels a day.

Best Quote

“This is a measure of just how abruptly the world economy has fallen in recent months, and how dire and uncertain its future prospects have become.  De-globalization may already have begun.” – from a report published this month by PFC Energy, a consulting firm

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