The Petroleum Market: 1970-2001


Introduction

Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply. This is evident from the tremendous changes that the world oil market has been going through in the past thirty years.

In the following report, we would be identifying the events that have occurred in the past decades and analyzing how they have affected the world oil market in terms of both, prices and output.

The underlying concepts used to explain the changes due to various factors affecting the oil market are the Laws of Demand & Supply. The related concept that is used in the discussion of the report is of the shifts in, and the movements along the demand & supply curves. In this regard, it should be noted that whenever the quantity demanded changes due to changes in the price of the good in question, there is movement along the curves. On the other hand, whenever demand and supply increases (or decreases) due to changes in factors other than price of the good in question, there is a rightward (or leftward) shift in the curves.

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Events affecting the oil market

Formation of OPEC (1960)

Prior to 1970, world oil prices were set through negotiations among major private sector companies. OPEC was formed in 1960 with five founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. By the end of 1971 six other nations had joined the group: Qatar, Indonesia, Libya, United Arab Emirates, Algeria and Nigeria. From the foundation of the ...

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