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All Out of Lunch Money

All Out of Lunch Money

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Published by chucksevers
An in depth examination of OPEC's influence on the price of oil.
An in depth examination of OPEC's influence on the price of oil.

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Published by: chucksevers on Oct 29, 2007
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06/16/2009

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All Out of Lunch 1All Out of Lunch MoneyCharley SeversAxia College University of PhoenixCOM/120Professor Kirie Rose PedersenApril 22, 2007
 
All Out of Lunch 2All Out Of Lunch MoneyWith the constantly fluctuating gasoline prices, cost of groceries, insurance deductibles, medicalinsurance co-pays, and college tuition, the price of energy is taking a bite out of the real wage of theaverage wage earner. As we know the prices for gasoline seem to set new peaks every summer. Theaverage cost for heating a home has gone up as well (Pringle, 2006). Congress is concerned thatAmerica is being taken advantage of to a vast degree. The largest single factor that affects energy costs(gasoline, heating oil, refined oil) is the market price per 50 gallon barrel (Pb) of crude oil. The predominate force that influences market price for crude oil is The Oil Producing Exporting Countries,or OPEC. OPEC is an illegal cartel that is guilty of price-fixing and anti-competitive practices. Whatchoice do we have but hand over our lunch money to the playground bully?The Bully’s ChildhoodOPEC is not new to the world scene, nor are they without significant history descriptive of a playground bully. OPEC was created in 1960 when countries from the Middle East saw a need tostabilize the world market prices of crude oil. New Century Transportation Foundation’s map shows thecountries currently forming OPEC, in figure one.(Figure 1. The countries making up OPEC, New Century Transportation Foundation, 2005).
 
All Out of Lunch 3OPEC has used oil as a weapon in the past. OPEC’s personality has been forged from the resultsof greed and war. Nicolas Sarkis notes regarding the United States support of Israel during the Six Daywar of 1967, scorned the OPEC countries to such a degree that “Opec takes advantage of the situationafter the June 1967 Arab-Israeli war, and of a supply shortage, to force the western companies to agreeto end oil price discounting” (Sarkis, 2006, OPEC’s Influence). Remembering the oil embargo of 1973leaves a bitter taste in the mouth of those who endured it, which resulted in long lines at the gas pumps.Sarkis explains further on the embargo resulting from the 1973 Arab-Israeli war, “Arab producers placean embargo on countries that they regard as pro-Israeli (the United States and the Netherlands)” (Sarkis,2006, OPEC’s Influence). Additionally author Lauren Levy reiterates this point on the 1973 war byadding, “OPEC used oil to pressure the United States not to aid Israel’s war effort. Only two days intothe war OPEC members (led by Iran and Saudi Arabia) demanded a 100 percent increase in posted prices” (Levy, 2007, OPEC).OPEC currently monopolizes approximately 42% (This figure is slightly volatile and sofluctuates often) of the world’s oil production and controls about two thirds of the world’s oil reserves.When OPEC speaks everyone in the oil and investment world listens. When OPEC announces a cut in production levels, the price of oil will begin to rise, this statement is not an ambiguous one, according toOPEC’s own website, in the “frequently asked questions” section, note OPEC’s own response to thequestion: “Does Opec control the oil market?” note the contradiction, OPEC responds, “No, …However, OPEC’s oil exports represent about 51 percent of the crude oil traded internationally.Therefore OPEC can have a strong influence on the oil market, especially if it decides to reduce or increase its level of production” (OPEC, 2007).

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