Solaqua's Energy Future Project :: Context of the Project

Project Proposal

Section 1.1 Impending Energy Challenges

Section 1.2 The Rising Cost of Energy

Section 1.2.1 Energy Composition

 

 

OPEC and its Influence on Oil Prices

 

 

The period of realization that began in the early 1970’s was made possible by the formation of OPEC in 1960 at the Baghdad Conference. OPEC (Organization of Oil Exporting Countries) was initially constructed with five member countries; in 2005 there were 13 participating member countries. The aim of the organization is to assure unified control of oil policy in member countries to deliver fair and consistent prices to petroleum producers, economically efficient supply of petroleum to consumers, and a fair investment return to capital investors (OPEC).

 

In 1972 crude oil was selling at around $3.00 per barrel, a price that rose by a factor of four by the close of 1974. This was a result of the oil hike by the OPEC embargo as a result of wartime political support by western nations to Israel after an attack by Syria and Egypt. The embargo provided a net reduction of 4 million barrels per day in total global oil production which inflated consumer prices. The embargo ended in March of 1974, but the price of oil would never again be less than $12 per barrel.

 

In 1981 the price doubled, oil had skyrocketed from about $14 per barrel to $35 in three years. This time again the drastic shock to the global energy supply was a result of Middle East conflict. These two events underscore the importance of moving away from an energy future dependent upon imports from unstable sources (WTRG 2004). To increase the urgency of this situation, it should be mentioned that a recent strike in Venezuela, who exports 50% of its oil to the US, disrupted US oil imports and increased our reliance substantially on Middle East suppliers (Shore 2003).

 

 

 

This policy tool was effective at stabilizing prices of domestic oil and kept the price steady until early in the next century. Oil was discovered in Texas in 1901 in a volume that impacted the supply enough to drive prices down to below their previous levels of about $1.00 per barrel (in terms of 1900 dollars). The prices remained stable and low for most of the twentieth century and it wasn’t until 1971 when prices really started to change.

 

There were a few exceptions to that price however, not the least of which was the repercussions on domestic supply from post-war demand hikes in 1948. Domestic supplies were unable to keep up with consumption, and for the first time, the US became a net importer of oil.

 

 

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