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Marshall Jenkins, a woodcutter from Culpeper, Virginia, wishes the government could feel his pain. He owns one of the thousands of businesses that are feeling the pressure from rising fuel costs and was forced to retire his three-ton diesel shipping truck. I just cant afford to run that truck, Jenkins says of the $ 100 it costs to top off the tank, and I dont feel right about charging more for a chord of wood (Maier par. 6). With fuel prices at a record high, people like Jenkins are wondering if the high prices are a result of high demand or simply the result of greed. The latest information points toward greed. Although it seems that the oil prices are out of control because of the lack of this resource, there is no fuel shortage.
OPEC, the leading oil organization, is the key factor for the increase in oil prices. First, through the efforts of Juan Pablo Perez Alfonso, Venezuelan government official, who started the Organization of Petroleum Exporting Countries, worked to control the oil market and successfully maintain that power. Second, The Department of Energy's late 70 s report on the oil market proves that Opec's greed manipulated the shortage. Third, the historical correlation between the shortage in the 70 s and the late 90 s confirms that OPEC will continue to use marketing techniques to their advantage.
The beginning of the Organization of Petroleum Exporting Countries, OPEC, under the direction of one of Venezuela's government officials, Juan Pablo Perez Alfonso, was the first step that a group of near east countries took to gain the power to counter the immense profit of the oil monopoly of the United States and Europe. Juan Pablo Perez Alfonso realized the potential for profit through his observation of the practices of the U. S. Texas Railroad Commission. He studied the Commission with a focus on their planning strategies and noticed that before the 1960 s, the Texas Railroad Commission was dictating the oil market. Although they did not set a price for oil, they were able to determine what could be produced.
If the price began to drop, Alfonso noted that the Texas Railroad Commission would decide to reduce the numbers of days per month that oil could be manufactured. Although, this strategy kept the U. S. oil price at $ 1. 80 a barrel, foreign oil was costing only $. 10 a barrel (Smith 207).
Alfonso then discovered how the United States dealt with the competitive $. 10 a barrel that existed in the rest of the world. When the American oil companies noticed an increased amount of oil from countries abroad, because of the low prices, the government reacted by setting a quota on oil imports, referred to by British economist Paul Frankel as an invisible dike against the outside world (Smith 207). The second step in the plan of organized control was to implement the strategies of a successful magnate: He wanted to introduce an international Texas Railroad Commission for the whole world, but without the Texans. He envisioned paralleling the Texas Railroad Commissions plan: if prices began to fall, they would decrease production and then wait until the prices went up again. However, he also realized that Venezuela's 7 % of the oil market could cut back supplies as much as they wanted, but could never compete with the Middle Easts 70 % of production (Smith 212). As a result, Juan Alfonso instituted the third step in planned control when he traveled to the Near East to convince these nations [to] Unite and control, [to] conserve and cut back: Saudi Arabia, Iran, Iraq and Kuwait, with the added, but implied incentive that they would, also, share equally in the gains of such an action if they agreed to unite with Venezuela (Smith 220).
Thus, on September 9, 1960, those five countries combined and declared the birth of OPEC. As the engineer of this organized unification and planned supply, Juan Alfonso had now put OPEC in a position of control Juan Alfonso, the inventor proudly stated, We have formed a very exclusive club, (Smith 222), exactly the type of organization that he had envisioned. These five countries created an elite organization by two basic criteria (Smith 224 - 225). The first qualification was that they must have a substantial net export of oil. The second criterion was the applicant must have fundamentally similar interests in maintaining control of the oil distribution as those of the initial members.
If a country considered joining, three-quarters of the members of the five original nations had to approve her. A blackball by any founding member would deny the country access to membership (Smith 224 - 226). In order to maintain control, OPEC made an important change in their definition of similar interests to keep the Western countries out of the coalition. They no longer focused on a countrys concern for petroleum exporting, but the degree of loyalty she demonstrated to the eastern countries. For example Qatar and the small West African country Gabon, that were not substantial net exporters, were accepted, but the Western Hemisphere islands of Trinidad and Tobago were blackballed because, allegedly, they did not possess fundamentally similar interests to those of OPEC (Smith 225 - 229). In addition, Mexico, Canada, and the United States, all large exporting countries from the Western Hemisphere, were not invited to be part of the organization.
Opec's choice to exclude these power-player countries kept the Western Hemisphere of North America out of the distribution and relegated them to the position of buyers only. According to the American Marketing Association, a second indication is prevailing marketing producers must be capable of influencing the process of planning and executing the conception, pricing, distribution, and promotion of their goods in order to create an exchange that satisfies their organizational objectives (Student Handbook 337). According to the design of Juan Alfonso, OPEC demonstrated their dominant powers as marketing producers twenty years after their birth with the first planned oil shortage scandal. In the late 70 s there was a modest surplus of oil in the channels of the world.
Consequently, higher prices that developed had forced some of the other large sellers to produce more oil. The OPEC watchman noticed that their cartel was realizing less money because the value of the currencies of the west, their major market, was declining faster than oil prices were increasing (smith 278). Parallel to Alfonso's strategy to cut back production till the prices went up again, OPEC requested that Iran, the largest of the producing members, instantaneously halt their production of six million barrels a day. The missing six million barrels a day was enough to create a shortage and a scramble for stability, especially for Israel, South Africa, Sweden, Italy and Spain.
These five countries could no longer buy Iran's supplies and were searching for oil wherever they could find it and at any price. These nations found themselves at the spot. In the oil trading business the spot is the market place in the Rotterdam harbor where countries can buy oil on a daily basis from huge tankers (Smith 278 - 280). Furthermore, Alfonso's plan for domination of the oil market began to be understood by The Department of Energy, on Monday, May 14, 1979, when the OPEC producers went to the spot.
Hastily, OPEC opened their oil market for sale at $ 23, a price that was above the earlier posted OPEC price of $ 13. 34 (Smith 279). On Tuesday, the following days price rose $ 5 to close at $ 28, and two days later on Thursday the sales ended at $ 34 (Smith 279). Prices are out of control, voiced Ali Khalifa al-Sabah, the oil minister of Kuwait (Smith 281). Despite his extreme statement, prices continued to ascend as well as the selling of oil at the spot. In addition, OPEC even pulled some oil from long-term contracts and sold it on the spot market in hopes of maximizing their profit.
Prices eventually reached a high as they soared to $ 42 a barrel (Smith 280). When The Department of Energy in Washington D. C. calculated the supply and demand of the oil market in the late 70 s and concluded that there should have been an excess of a million barrels a day (Smith 281), this observation suggested that the shortage was planned and not real. Furthermore, the spot price was not reflecting a shortage, but rather greed for money. During the late 70 s, crisis headlines such as User to Lay Off 3, 585 and Cut 268 Flights, Transit Group Warns on Earnings and FedEx Sets Fuel Surcharge appeared in the papers.
However, when these related headlines appeared in the papers once more this past year the obvious oil price increase was noticed to be a planned, oil shortage re-run. Furthermore, with Opec's 48. 3 %, almost half of the worlds seventy-four million barrels recovered a day, they are still dictating the manufacturing and distribution of this perfectly competitive oil market (Questions and Answers on world Oil Supply Q&A 6, 7). Paralleling the 70 s crisis when Iran cut back their production, the late 90 s crisis began when Iraq, the fourth largest oil exporter, though OPEC halted their 2. 3 million barrels a day supply (Slavin). Although Iraq's oil minister Amer Mohammed Rashid claims that The OPEC oil policy has always been aimed at stability of the world oil market, the White House spokesman P. J. Crowley said that the Clinton Administration would pay attention to what the organization does more than what it says (Slavin).
Furthermore, paralleling the late 70 s planned oil crisis to the late 90 s is the U. S. annual consumption rate. Before the current price raise, the Annual Energy Review calculated the 1997 U.
S. total petroleum consumption rate at 18. 6 million barrels a day (U. S. Total Petroleum Consumption graph 5. 1). Consequently, the only other year to reach a consumption rate of 18. 6 million barrels was in 1977, directly before the oil price increase in the late 70 s (U.
S. Total Petroleum Consumption graph 5. 1). Moreover, the latest oil crisis is also proving to be a planned oil shortage. Amazingly, in addition, higher prices have brought more oil to the market.
If the worlds economists, politicians, and oil industries were honestly concerned that our supply of oil was running low, the world powers would not permit OPEC to increase freely its oil production to the 1. 7 million barrels they were outputting last April (Brooks par. 7). Moreover, OPEC increased their output on July 1 by 708, 000 barrels daily (Brooks par. 2). The increase was not enough to slake the worlds growing thirst for petroleum or soothe the high fuel costs. However, the continuous increase in oil distribution into the market proves that there is not an oil shortage just as the late 70 s crisis demonstrated.
Furthermore, Alfonso's methods to dominate the oil market by distributing oil through small spurts, allows them to remain in control of the oil market. They then continue to reap the capital benefits from the over priced fuel and fool the consumer with their planned shortage. Finally, OPEC will continue to play the oil market as if it is a game of Risk; and unless another world power can control the market, OPEC will never lose. Bibliography: Brooks, Nancy Rivera. OPEC Boost in Output Wont Cut Gas Prices. Los Angeles Times. (22 June 2000): 31 pars. 16 November 2000.
Business Administration: Marketing. Student Handbook College and University Edition. Tennessee: The Southwestern Company, 1996. Inflation and Deflation: Gasoline Price Increase. NCPA Economic Issues 12 pars. 16 November 2000 web html>. Maier, Timothy W.
Oil Debate Boils. 2000 News World, Communications, Inc. 16. (23 Oct. 2000): 25 pars. 3 November 2000. Pennington, Robert L. Economics. New York: Holt, Rinehart and Winston, 1999.
Questions and Answers on World Oil Supplies. American Petroleum Institute Briefing. 10 pars. 21 November 2000. Slavin, Barbara. After halting shipments, Iraq to resume oil exports. USA Today 2 December 2000, sec. 23 A.
Smith, Adam. Paper Money. New York: Simon & Schuster Division of Gulf & Western Corporation, 1981. U. S.
Total Petroleum Consumption. Annual Energy Review 6 pars. 25 November 2000.
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Research essay sample on Million Barrels Oil Market
