Story: The Day That OPEC Disbanded
dutyje
Posts: 2,263 ✭
For all you younger folk, let me tell you about the now-defunct OPEC. The Organization of Petroleum Exporting Countries was an organization rooted in anti-Capitalist concepts designed to exact tight control over the global supply and cost of oil, under the guise of "market stabilization." Its member nations combined to produce a significant portion (though less than a majority) of the world's oil supply. This cartel served to protect fuel revenue for its member nations through the enforcement of production quotas on its members.
In the early 2000's, demand for oil was in the midst of a period of unprecedented global growth. Speculative investors looked at the historical trends of oil demand, and noticed a continuing struggle between OPEC and its consumer nations to determine satisfactory production quotas. These investors bought oil contracts, creating a falsely inflated demand for oil.
While increasing its output, OPEC did not match the increasing demand for oil, thereby allowing prices to escalate. Non-member nations enjoyed these same price gains, and oil-producing countries as a whole prospered. As oil prices continued a seemingly endless upwadr spiral, fueled by natural disasturs and other temporary supply disruptions, speculative investors sought to capitalize on the money being made in oil. The escalating price of oil spurred major efforts to leverage alternative fuels and alter the oil-use habits of consumer nations. While somewhat effective, these efforts had a difficult time keeping up with the speculative rise in oil prices.
Turmoil in the U.S. housing market created a major financial crisis which threatened the global economy. Credit markets began to freeze, and a long-term slowdown was imminent. With this news, the speculative investors began to fear an end to the days of ever-increasing oil prices. These fears led to a sell-off of the oil contracts, causing a drop in fuel prices. Demand for fuel, already suffering from a change in consumer and corporate usage habits, collapsed as the market began to adjust down from its inflated levels. As demand eroded, the price of oil plummeted.
In order to combat the drastic plunge in oil prices, and to protect their price per barrel revenue, OPEC held an emergency meeting to drop its periodic production quotas. However, several OPEC member nations resisted this drop, because they were already suffering from a drop in per-unit price. A reduction in volume would further increase the severity of this impact.
Meanwhile, non-member nations such as Russia increased their production to make up for their own lost revenue on declining prices. This increased production offset the cartel's attempt to influence global oil prices through reduced production. Non-member nations increased their market share in the global oil economy. OPEC member nations continued to suffer the double-impact of price and production declines.
Several member nations began producing barrels beyond their OPEC quota, in order to increase their own revenue. OPEC recognized that this production undermined its efforts to control the economy of oil. OPEC levied stiff penalties on these nations through fines and further reduction in their export allowance. In June 2009, soon after the average price of a gallon of gas fell below $1 in the U.S., Ecuador broke from the ranks of OPEC and suspended its membership in the organization. Nigeria and Angola quickly followed. These three nations immediately stepped-up production of oil, capitalizing on an instant increase in national oil revenue.
By 2010, International relations between the United States and Venezuela deteriorated, and attention on this conflict increased as the focus shifted away from U.S. involvement in Iraq. With this increased pressure, Venezuela began to radically increase its investment in military. Most of this investment had to be funded through its oil revenue, which had been suffering significantly. In order to fund an increased military, Venezuela could not continue to live by the quotas imposed by OPEC. Iran was faced with the same concerns.
In February 2011, OPEC was splintered into two competing cartels. Iran, Venezuela, Algeria, and Qatar broke from OPEC to create their own organization. The remaining OPEC was left controlling less than 20% of the world's oil supply. The United States created an embargo against the rebel OPEC countries, and refused to accept their oil. Non-member nations and the remaining members of the original OPEC stepped up production to fill this gap. Facing huge political pressure, members of this splinter organization quickly disbanded and produced oil independently.
Remaining OPEC member nations continued to secretly produce more oil than their agreed quotas, effectively wiping out the basis of their organization. In February of 2012, new, independent agreements were made between the OPEC member nations to retain the oil distribution channels which had existed under OPEC, while the organization itself was formally disbanded.
In the early 2000's, demand for oil was in the midst of a period of unprecedented global growth. Speculative investors looked at the historical trends of oil demand, and noticed a continuing struggle between OPEC and its consumer nations to determine satisfactory production quotas. These investors bought oil contracts, creating a falsely inflated demand for oil.
While increasing its output, OPEC did not match the increasing demand for oil, thereby allowing prices to escalate. Non-member nations enjoyed these same price gains, and oil-producing countries as a whole prospered. As oil prices continued a seemingly endless upwadr spiral, fueled by natural disasturs and other temporary supply disruptions, speculative investors sought to capitalize on the money being made in oil. The escalating price of oil spurred major efforts to leverage alternative fuels and alter the oil-use habits of consumer nations. While somewhat effective, these efforts had a difficult time keeping up with the speculative rise in oil prices.
Turmoil in the U.S. housing market created a major financial crisis which threatened the global economy. Credit markets began to freeze, and a long-term slowdown was imminent. With this news, the speculative investors began to fear an end to the days of ever-increasing oil prices. These fears led to a sell-off of the oil contracts, causing a drop in fuel prices. Demand for fuel, already suffering from a change in consumer and corporate usage habits, collapsed as the market began to adjust down from its inflated levels. As demand eroded, the price of oil plummeted.
In order to combat the drastic plunge in oil prices, and to protect their price per barrel revenue, OPEC held an emergency meeting to drop its periodic production quotas. However, several OPEC member nations resisted this drop, because they were already suffering from a drop in per-unit price. A reduction in volume would further increase the severity of this impact.
Meanwhile, non-member nations such as Russia increased their production to make up for their own lost revenue on declining prices. This increased production offset the cartel's attempt to influence global oil prices through reduced production. Non-member nations increased their market share in the global oil economy. OPEC member nations continued to suffer the double-impact of price and production declines.
Several member nations began producing barrels beyond their OPEC quota, in order to increase their own revenue. OPEC recognized that this production undermined its efforts to control the economy of oil. OPEC levied stiff penalties on these nations through fines and further reduction in their export allowance. In June 2009, soon after the average price of a gallon of gas fell below $1 in the U.S., Ecuador broke from the ranks of OPEC and suspended its membership in the organization. Nigeria and Angola quickly followed. These three nations immediately stepped-up production of oil, capitalizing on an instant increase in national oil revenue.
By 2010, International relations between the United States and Venezuela deteriorated, and attention on this conflict increased as the focus shifted away from U.S. involvement in Iraq. With this increased pressure, Venezuela began to radically increase its investment in military. Most of this investment had to be funded through its oil revenue, which had been suffering significantly. In order to fund an increased military, Venezuela could not continue to live by the quotas imposed by OPEC. Iran was faced with the same concerns.
In February 2011, OPEC was splintered into two competing cartels. Iran, Venezuela, Algeria, and Qatar broke from OPEC to create their own organization. The remaining OPEC was left controlling less than 20% of the world's oil supply. The United States created an embargo against the rebel OPEC countries, and refused to accept their oil. Non-member nations and the remaining members of the original OPEC stepped up production to fill this gap. Facing huge political pressure, members of this splinter organization quickly disbanded and produced oil independently.
Remaining OPEC member nations continued to secretly produce more oil than their agreed quotas, effectively wiping out the basis of their organization. In February of 2012, new, independent agreements were made between the OPEC member nations to retain the oil distribution channels which had existed under OPEC, while the organization itself was formally disbanded.
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Comments
where is this from?
ill try and comment at a later point. I need to let it sink in and think about it for a bit.
my first impression is that everyone will always (either as a group or an individual) do what is best for them regardless of regulation.
but thats just a first impression. Ill re-read later and comment more.
And they were singin', bye-bye Miss American pie. Drove my Chevy to the levy but the levy was dry. Them good ol' boys was drinkin' whiskey and rye, singin', "This'll be the day that I die."
Can we get BIG round of applause for the one and only Urbino McClean ladies and gentlemen!!!! He is playing here all weekend!!
I'm clearly in no condition to work.
Or I could have my secretary pick it up for me, I guess.
i havent had time to really put thought into it.