The question of the oil cartel is one which is important in globalization today. Many say that it still exists and is a barrier to free trade. Others say that it does not exist and is merely a product of a very highly regulated market. Black gold is industry's lubricant and thus it's supply is essential for economic progress.
This means that the term cartel must first be defined. Cartels are characterized by a formal agreement among different firms in a single industry who produce a single product. This agreement generally contains terms for price setting and resource pooling. This effectively converts the different firms into a single firm, inflating costs by suppressing supply. Their clout also means that they can kill off competition by undercutting until the smaller firm cannot sustainably continue.
The OPEC, or the Organization of the Petroleum Exporting Countries is an oft-cited example of an oligarchic control over oil. This was demonstrated before in history, when they singlehandedly threw the world into crisis in 1973, by suppressing the supply of petroleum. This threw doubt about the real scarcity of oil and allowed for greater scrutiny for the quotas made by the OPEC.
The reason they did this, however, was political. Their suppression was seen as a reaction to Western support of the Israeli forces during the Yom Kippur War. The OPEC then was an almost exclusively Arab club.
With the development of more and more new sources of oil in diverse places, this Arab supremacy has been lessened. The OPEC's members today include Venezuela, Ecuador and a democratic Russia. Non-members who export petroleum include the United States, Canada, Mexico, Malaysia and Indonesia, which has also weakened this trading bloc's capacity to dictate the prices in the world market.
In the local scene, however, an oligarchy is said to persist. This is very true for places where gas is still an imported product. This "single pipeline" has forced different companies to match their prices at the pump. Since there are high barriers to entry in the petroleum distribution industry, this makes collusion easier. These companies also often are vertically integrated, from pipe to pump and even beyond.
The presence of small players, on the other hand, weakens this stranglehold. Since they can undercut the oligarchs and are protected by law, they can keep the prices competitive. However, with the scarcity of oil being felt more and more, this remains to be seen. In addition, factors such as piracy and political instability in oil-producing areas can make it more difficult for people to be able to accurately control the prices.
Thus, the oil cartel is no longer acting at the production side but at the distribution side. This is important since the focus is now shifting to major refining centers like Singapore. This is now where the price of petroleum is made and decided on. It is in this area that we must keep watch.
This means that the term cartel must first be defined. Cartels are characterized by a formal agreement among different firms in a single industry who produce a single product. This agreement generally contains terms for price setting and resource pooling. This effectively converts the different firms into a single firm, inflating costs by suppressing supply. Their clout also means that they can kill off competition by undercutting until the smaller firm cannot sustainably continue.
The OPEC, or the Organization of the Petroleum Exporting Countries is an oft-cited example of an oligarchic control over oil. This was demonstrated before in history, when they singlehandedly threw the world into crisis in 1973, by suppressing the supply of petroleum. This threw doubt about the real scarcity of oil and allowed for greater scrutiny for the quotas made by the OPEC.
The reason they did this, however, was political. Their suppression was seen as a reaction to Western support of the Israeli forces during the Yom Kippur War. The OPEC then was an almost exclusively Arab club.
With the development of more and more new sources of oil in diverse places, this Arab supremacy has been lessened. The OPEC's members today include Venezuela, Ecuador and a democratic Russia. Non-members who export petroleum include the United States, Canada, Mexico, Malaysia and Indonesia, which has also weakened this trading bloc's capacity to dictate the prices in the world market.
In the local scene, however, an oligarchy is said to persist. This is very true for places where gas is still an imported product. This "single pipeline" has forced different companies to match their prices at the pump. Since there are high barriers to entry in the petroleum distribution industry, this makes collusion easier. These companies also often are vertically integrated, from pipe to pump and even beyond.
The presence of small players, on the other hand, weakens this stranglehold. Since they can undercut the oligarchs and are protected by law, they can keep the prices competitive. However, with the scarcity of oil being felt more and more, this remains to be seen. In addition, factors such as piracy and political instability in oil-producing areas can make it more difficult for people to be able to accurately control the prices.
Thus, the oil cartel is no longer acting at the production side but at the distribution side. This is important since the focus is now shifting to major refining centers like Singapore. This is now where the price of petroleum is made and decided on. It is in this area that we must keep watch.
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