OPEC and the U.S. Economy
OPEC (Organization of the Petroleum Exporting Countries) was founded in Baghdad in 1960. It originally had five members; Iraq, Iran, Saudi Arabia, Kuwait, and Venezuela. In 1965 the headquarters for OPEC moved to Vienna where it remains today. OPEC is currently made up of thirteen countries and they are responsible for over 40% of the world’s oil production as well as over 70% of the world’s proven oil reserves. OPEC’s mission statement, according to its official website www.OPEC.org, is “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers …show more content…
In 1979 the price of crude oil hit its record high reaching a price of $117.18 a barrel. This price hike resulted in an unprecedented search for oil exploration and in 1981 President Ronald Reagan signed an executive order that would get rid of price controls and allow the free market to determine the price of oil which allowed for an increase in oil production as well as competition and by 1988 non OPEC oil production had rissen 54% with countries like Mexico, Brazil, USSR, and the U.K. beginning to produce more and more oil along with the U.S. drilling in Alaska and in the Gulf of Mexico. By 1985 Saudi Arabia and OPEC, while still major players, lost much of their wing power and were unable to affect the price of crude oil the way they had in the 70’s. By 1986 oil prices would fall back down to $25 a barrel, losing almost 80% of its value almost instantly. OPEC attempted to counter this with several reductions in oil production between 1980 and 1986 but it wasn’t enough for them to hold onto their grasp at the top of the oil production. They had effectively driven other countries into the market and caused the supply to increase. The Energy Policy and Conservation Act from 1975 had also had an effect as average miles per gallon rose from 17 mpg in 1978 to 22 mpg by 1982. This led to a decreased demand to go along with the increased supply of crude …show more content…
Iraq set fire to Kuwait’s oil wells and the unrest and damage that resulted caused the price of oil to jump back up to $46 a barrel. This wasn’t as bad as the 70’s price increases but was still a significant price increase. The U.S. Federal Reserve did not increase interest rates to counteract the price increase they just let it play out and after Desert Storm succeeded in protecting major oil producing facilities in Kuwait and Iraq the price of oil began to drop again. The 1997 East Asian Financial Crisis caused prices to drop even further as it drastically reduced demand for oil. The panic the financial crisis caused saw the region’s stock markets drop by 60%. This was bad timing for OPEC as they had just agreed to ramp up oil production so as the demand decreased the supply increased causing the price per barrel of crude oil to drop to $10. OPEC was forced to call an emergency meeting to reign in their oil production to keep the price of oil from dropping any further. This decrease in the price of oil was great for the automobile industry, shipping, and for consumers who saved money at the pump but it was a nightmare for domestic oil companies. Oil companies were losing money fast and were forced to slash jobs and cut production. From 1997 to 1999 the number of active oil rigs in the U.S. fell from 392 to 111. This led to some major
OPEC (Organization of the Petroleum Exporting Countries) was founded in Baghdad in 1960. It originally had five members; Iraq, Iran, Saudi Arabia, Kuwait, and Venezuela. In 1965 the headquarters for OPEC moved to Vienna where it remains today. OPEC is currently made up of thirteen countries and they are responsible for over 40% of the world’s oil production as well as over 70% of the world’s proven oil reserves. OPEC’s mission statement, according to its official website www.OPEC.org, is “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers …show more content…
In 1979 the price of crude oil hit its record high reaching a price of $117.18 a barrel. This price hike resulted in an unprecedented search for oil exploration and in 1981 President Ronald Reagan signed an executive order that would get rid of price controls and allow the free market to determine the price of oil which allowed for an increase in oil production as well as competition and by 1988 non OPEC oil production had rissen 54% with countries like Mexico, Brazil, USSR, and the U.K. beginning to produce more and more oil along with the U.S. drilling in Alaska and in the Gulf of Mexico. By 1985 Saudi Arabia and OPEC, while still major players, lost much of their wing power and were unable to affect the price of crude oil the way they had in the 70’s. By 1986 oil prices would fall back down to $25 a barrel, losing almost 80% of its value almost instantly. OPEC attempted to counter this with several reductions in oil production between 1980 and 1986 but it wasn’t enough for them to hold onto their grasp at the top of the oil production. They had effectively driven other countries into the market and caused the supply to increase. The Energy Policy and Conservation Act from 1975 had also had an effect as average miles per gallon rose from 17 mpg in 1978 to 22 mpg by 1982. This led to a decreased demand to go along with the increased supply of crude …show more content…
Iraq set fire to Kuwait’s oil wells and the unrest and damage that resulted caused the price of oil to jump back up to $46 a barrel. This wasn’t as bad as the 70’s price increases but was still a significant price increase. The U.S. Federal Reserve did not increase interest rates to counteract the price increase they just let it play out and after Desert Storm succeeded in protecting major oil producing facilities in Kuwait and Iraq the price of oil began to drop again. The 1997 East Asian Financial Crisis caused prices to drop even further as it drastically reduced demand for oil. The panic the financial crisis caused saw the region’s stock markets drop by 60%. This was bad timing for OPEC as they had just agreed to ramp up oil production so as the demand decreased the supply increased causing the price per barrel of crude oil to drop to $10. OPEC was forced to call an emergency meeting to reign in their oil production to keep the price of oil from dropping any further. This decrease in the price of oil was great for the automobile industry, shipping, and for consumers who saved money at the pump but it was a nightmare for domestic oil companies. Oil companies were losing money fast and were forced to slash jobs and cut production. From 1997 to 1999 the number of active oil rigs in the U.S. fell from 392 to 111. This led to some major