EGEE 120
Oil: International Evolution

The Quest Chapter 5, 8

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Chapter 5 - The Oil War

Consider the following questions:

  • Why did the relationship change between former pals, Venezuela and Saudi Arabia?
  • How can oil exporting countries balance the international cooperation with their profit?

This Oil War is not as literal as the October War, yet it illustrates when a financial crisis spurs a similar but different shock to the world oil market. Earlier in the lesson, it was noted that Saudi Arabia (SA) became the Swing Producer; this carries through into our current time. SA frequently has struggles with other OPEC nations that do not stick to the agreed upon production. When these rebel OPEC members increase their production, the profit comes out of SA’s pocket more often than any other OPEC member.

We learned how even under an embargo, OPEC members still pushed the outer limits of production. They were sure to keep the US out of the share, but that meant the whole world market shrank and thus OPEC countries were all losing income. In this section, Venezuela chooses to ignore the OPEC quotas and disregards the impact of world financial crisis. This makes each exporting country’s market share shrink, and so this rebellion by VZ hurts all the oil producers, OPEC and non-OPEC alike.

Chapter 8 - The Tightest Market

The Prize readings review the 1973 Oil Embargo, what led to it and then how the oil companies responded with equal suffering. This section compares the 73 Embargo to the more recent disruptions in the world oil market in 1996, 2003, 2005 - the world lacking a security cushion or the ability of the United States to raise production again as they did in response to the 56 Suez Crisis and the 67 Oil Embargo. There was no safety net - the market responded with higher prices to shrink the demand and signal for restraint in market. These times were not planned as the oil embargoes were to modify a behavior of another country. There were different challenges that brought on these disruptions. So many times the oil companies strive to find the balance in supply and demand, yet oil has broader implications beyond the basics supply and demand concept. War, Weather, Financial Crisis, Revolution, shift in Political Ties, Religion, Technology are only a few non-oil related situations that also impact the oil supply and demand.