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IB Economics IA Commentary. Title of Extract: OPEC will pump more oil, assures Saudi Arabia

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Introduction

International Baccalaureate Internal Assessment: Economics Commentary 2 Candidate Name: Candidate Number: Date of Commentary: March 20, 2011 Word Count: 748 Pertaining Section of IB Economics Syllabus: 2 (Microeconomics) Title of Extract: "OPEC will pump more oil, assures Saudi Arabia" Source: Internet - The Sydney Morning Herald Online http://www.smh.com.au/business/opec-will-pump-more-oil-assures-saudi-arabia-20110125-1a49h.html Date of Extract Publication: January 26, 2011 OPEC will pump more oil, assures Saudi Arabia Richard Spencer January 26, 2011 - 3:00AM SAUDI ARABIA has promised that the oil cartel OPEC will boost supplies to meet demand and maintain a healthy level of spare capacity. It was responding to the growing alarm around the world about rising prices for oil. Ali al-Naimi, the kingdom's oil minister, quoted studies showing world oil demand would grow by up to 1.8 million barrels of oil per day this year, or about 2 per cent. But he told a conference in Riyadh that the Organisation of Petroleum Exporting Countries would stick to its policy of meeting any increase in demand with an increase in supply. ...read more.

Middle

comes from improving consumer optimism and worry among consuming nations that increasing global demand will force prices to skyrocket, bringing pressure on OPEC to maintain good relations with its importers by keeping prices stable and practical. As basic economic theory suggests, an increase in the demand (Demand - the quantity of a product that consumers are willing and able to purchase at a specific price.) of a product will cause its price to increase. Therefore, consumers are justified in their fear of climbing prices since only three years earlier, crude oil reached its peak of $147 per barrel that caused public determination to retain affordable prices afterward which brought strain on OPEC to further implement methods of price regulation in the future. In order to combat the rise in price and return it to the original level, an increase in supply (Supply - the quantity of a product that a firm is willing and able to offer at a given price.) ...read more.

Conclusion

Just as al-Naimi comments, although the organization, "expects price stability to continue at last year's rates," by implementing the policy, they are, "concerned about ... the upward or downward pressure of speculators ... on prices away from natural market fundamentals." OPEC members are justified in their concern over the consequences of speculative buying because these purchases falsely drive demand and prices while not fueling an immediate need for the good, either upward or downward according to future predictions instead of current figures. Since petroleum-based products are essential to industrial society and are among the most sought-after resources, this fallacy in the fragile equilibratory demand-supply relationship can often cause disruptions in price stability, undermining OPEC's efforts to keep prices consistent. While OPEC can manage to keep prices stable in the present by feeding the rising demand with increased supply, the organization will face greater economic difficulties with price stability in the future as the global population constantly rises and oil becomes increasingly scarce. 1 - Definition from: Ziogas, Constantine. Economics for the IB Diploma: Standard and Higher Level, 2008. ?? ?? ?? ?? ...read more.

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