OPEC (Organization of Petroleum Exporting Countries) just reached an agreement the previous week that would cut production down of oil. This will cut the pump at will policy to only 32-33 million barrels a day. As we know, gas and oil prices have been really low lately. This is due to the flood of oil in the market creating an oversupply making countries incapable of raising the prices on their oil. The free oil market is hurting their economies, including oil rich economies. This is why within this agreement Saudi Arabia agreed to cut a deal with Iran, who will be exempt from the cap on production.This is interesting because these countries are actually asking for a market management. This of course will raise the price on gas for us, but it will boost the economies for these countries and widen the markets for energy industries such as, Exxon Mobil, as well as smaller U.S. shale firms. This is one instant in which there was some backlash for having a free flowing market because the supply can exceed the demand for the market which takes a toll on the profit these countries make from these specific markets.
I believe this is one instant in where a organization like OPEC is needed to make sure and oversee that the markets are still profitable for these countries and businesses. The IMF is of course not the same thing, as they try to regulate through liberalizing and balancing budgets to help the certain countries’s markets. There is more to OPEC than this issue of course as well, but I believe this type of regulatory organization is a little bit more effective because it’s looking at one specific type of market and how to effectively (hopefully) regulate it. This is of course different from the IMF, which is used to lend money to certain countries with failing markets, but they do not look at the specific types of markets within these countries and sort of just impose a one size fits all solution. This becomes problematic when not all countries can sustain the policies the IMF puts into place. OPEC is more market specific, which could be more effective.
Marissa,
ReplyDeleteOil is something that I think I want to take some time later in the semester to talk about (not on the syllabus). Can you explain the economic reason why the US would want higher gas prices? Who is hurting and why?
Bonus question: what is the environmental impact?
Marissa,
ReplyDeleteOil is something that I think I want to take some time later in the semester to talk about (not on the syllabus). Can you explain the economic reason why the US would want higher gas prices? Who is hurting and why?
Bonus question: what is the environmental impact?
Okay! Well, I found this article that NPR did on this subject: http://www.npr.org/2016/01/28/464726409/why-cheap-gas-might-not-be-good-for-the-u-s-economy. They appear to be pretty optimistic that the low price of oil and gas is good for the American economy. Except for those who are invested in the oil market. Such as truck driver's (those who transport the oil), those who serve those people who are part of the oil business, and people within the American oil industry. So in that sense, those people are being hurt by this price dive. More pertaining to this class though, it is pointed out that it actually has big implications on the global market. When prices are low, it can be unprofitable for certain countries which can create instability, which instability in those countries is bad for the global economy considering how interdependent countries are one another. This is also can turn into a price drop in other commodities, which isn't profitable for companies and when companies aren't profitable the first cuts they may make are their laborers, which hurts the average worker. This will of course not be a immediate reaction to the oil price drop, but if the prices continue to be low, this could be a long-term effect. As for the environmental impact, by prices being low, I believe there has been increase in travel, which has an affect on the environment due to the carbon monoxide and nitrogen oxides emission in the air. When prices are high, people tend to travel less due to how expensive it can be. This can be bad for those who benefit from travelers, but it certainly is good for the air. Also, when gas prices are higher, it gives people a push to find alternative energy sources which may be cheaper, more efficient, and safer for the environment.
ReplyDeleteSorry for the grammatical errors. I was planning on reading it over and then editing it, but for some reason it won't let me.
DeleteSorry for the grammatical errors. I was planning on reading it over and then editing it, but for some reason it won't let me.
DeleteHey Marissa,
ReplyDeleteI thought it was interesting that Saudi Arabia and Iran are backing different sides on Civil Wars in other nations, and in the past few years they have disagreed on oil policies, but they were still able to come to a decision for a production cap proposal. The article says that this decision was mediated by Russia, Algeria and Qatar. It shows that it is in these countries best interest to cooperate on these policies because of the effect on their economies. Even if they have conflicts in other areas, this policy decision shows that coming to an agreement was in their best interest. This is similar to the idea of liberal institutionalism, that organizations such as the OPEC can allows states to have increased cooperation.
I am looking forward to learning more about oil later in the semester.
Thanks,
-Julia
Hey Julia!
ReplyDeleteThank you for your comment. That is something I also found interesting as well. I think this is a good example on how globalization and trade encourage cooperation and mutual gains, despite separate issues going on between countries. Luckily, they were able to come to an agreement because if the issue was flipped around then it would be a great example on how when countries have conflicts, these conflicts have a possibility of hurting the global economy. Luckily this did not occur though. Thank you again!
Marissa Jordan
Hey Marissa!
ReplyDeleteI would have to agree that an organization like OPEC is helpful, especually in making sure that countries economies don't get hurt by price fluctuations. However, I am wondering if we should have more then one organization like OPEC, or if the IMF, World Bank, or WTO should, in some way be able to do what OPEC does. The reason I think having more then one may be helpful, is that it would allow for the protection of the market and the protection of the countries. I am curious to see, as the world government structure continues to develop, how this will end up looking in 10, 20, or even 30 years.
Nice post!
Ben
Hey Marissa!
ReplyDeleteI would have to agree that an organization like OPEC is helpful, especually in making sure that countries economies don't get hurt by price fluctuations. However, I am wondering if we should have more then one organization like OPEC, or if the IMF, World Bank, or WTO should, in some way be able to do what OPEC does. The reason I think having more then one may be helpful, is that it would allow for the protection of the market and the protection of the countries. I am curious to see, as the world government structure continues to develop, how this will end up looking in 10, 20, or even 30 years.
Nice post!
Ben