164 PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
the price of crude oil exceeded $53 per barrel and for December
delivery exceeded $55 per barrel. Crude oil prices surged to a then
record high above $60 a barrel in June 2005, and to the unheard of
prices in excess of $145 per barrel in the late summer of 2008.
Historically, a recession may be expected to follow a spike in oil
prices but higher crude-oil prices alone are not enough to cause a
recession and other factors must be considered (Laufenberg, 2007).
The key is to not simply acknowledge that the price of crude oil
is higher, but rather ask why?
6.2 Pricing Strategies
OPEC was formed in 1960 with five founding members: Iran, Iraq,
Kuwait, Saudi Arabia, and Venezuela. By the end of 1971, six other
nations (Qatar, Indonesia, Libya, United Arab Emirates, Algeria,
and Nigeria) had joined of OPEC. By 1973, OPEC controlled enough
petroleum production that, when acting collectively, it could determine whether the world oil supply and could subsequently define
the market price.
Ultimately, the OPEC member nations set new production quotas and, at the same time, a change in petroleum pricing was instituted. In 1983, the New York Mercantile Exchange (NYMEX) began
to trade crude oil futures on the commodity market. This meant
that commodity market trading would become the price maker and
crude oil prices would be set on the trading floors of the NYMEX
that, in turn, is set by supply and demand, with the oil-producing
countries controlling demand. But, this is a double-edged sword.
However, Russia, one of the major oil producing countries, has
become a key to the course of future crude oil supply politics. Since
January 2000, Russian crude oil production has increased by more
than 900,000 barrels per day, which has offset the reductions made
by OPEC to stabilize crude oil supply. Without significant action by
Russia to reduce its production, there is the risk of an oil price war.
Oil prices contribute significantly to the national budgets of
oil-producing countries. A high oil price encourages prosperity in
such countries. Whether or not the oil-consuming countries move
to other sources of energy and learn to control the demand for oil,
crude oil prices and crude oil production may be lowered and prosperity will suffer. This has the potential to destabilize many of the
governments of the oil-producing countries. The result is possible
the price of crude oil exceeded $53 per barrel and for December
delivery exceeded $55 per barrel. Crude oil prices surged to a then
record high above $60 a barrel in June 2005, and to the unheard of
prices in excess of $145 per barrel in the late summer of 2008.
Historically, a recession may be expected to follow a spike in oil
prices but higher crude-oil prices alone are not enough to cause a
recession and other factors must be considered (Laufenberg, 2007).
The key is to not simply acknowledge that the price of crude oil
is higher, but rather ask why?
6.2 Pricing Strategies
OPEC was formed in 1960 with five founding members: Iran, Iraq,
Kuwait, Saudi Arabia, and Venezuela. By the end of 1971, six other
nations (Qatar, Indonesia, Libya, United Arab Emirates, Algeria,
and Nigeria) had joined of OPEC. By 1973, OPEC controlled enough
petroleum production that, when acting collectively, it could determine whether the world oil supply and could subsequently define
the market price.
Ultimately, the OPEC member nations set new production quotas and, at the same time, a change in petroleum pricing was instituted. In 1983, the New York Mercantile Exchange (NYMEX) began
to trade crude oil futures on the commodity market. This meant
that commodity market trading would become the price maker and
crude oil prices would be set on the trading floors of the NYMEX
that, in turn, is set by supply and demand, with the oil-producing
countries controlling demand. But, this is a double-edged sword.
However, Russia, one of the major oil producing countries, has
become a key to the course of future crude oil supply politics. Since
January 2000, Russian crude oil production has increased by more
than 900,000 barrels per day, which has offset the reductions made
by OPEC to stabilize crude oil supply. Without significant action by
Russia to reduce its production, there is the risk of an oil price war.
Oil prices contribute significantly to the national budgets of
oil-producing countries. A high oil price encourages prosperity in
such countries. Whether or not the oil-consuming countries move
to other sources of energy and learn to control the demand for oil,
crude oil prices and crude oil production may be lowered and prosperity will suffer. This has the potential to destabilize many of the
governments of the oil-producing countries. The result is possible