The Quest, Chapter 5 and 8 The Oil War and The Tightest Market

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 became the Swing Producer; this carries through into our current time. Saudi Arabia 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 Saudi Arabia’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 Venezuela hurts all the oil producers, OPEC and non-OPEC alike.

Chapter 8 - The Tightest Market

This section of The Quest Chapter compares the 1973 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 1956 Suez Crisis and the 1967 oil embargo. There was no safety net - the market responded with higher prices to shrink the demand and signal for restraint in the market. These times were not planned as the oil embargoes were to modify the 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 basic supply and demand concept. War, weather, financial crisis, revolution, shift in political affiliations, religion, and technology are only a few non-oil related situations that also impact the oil supply and demand.