What Is The Structure Of The World Oil Market?

1916 words - 8 pages

The oil industry is a large and fast depleting industry. The main market oil producing countries and organizations such as Opec and Opec+, and a few other non-Opec countries indicate that their current production rates (reserves) are slowly being eaten up. This is shown by (graph 1)The structure of the world oil market is set to be oligopolistic as the oil market is dominated buy few suppliers, such as Opec and Opec + and the North Sea. For a industry to be classified as an oligopolistic industry it has to have a few large firm which hold a very large amount of output, also the firms must be interdependent, in addition the barriers to entry are very high, because not every country can produce oil, and therefore can not enter the oil market, and take advantage of the abnormal profit.Before 1970 the world oil market was at a steady position, as the demand was inelastic, indicating that there wasn't a high demand for oil, which means that the price for oil didn't change at a significant rate, actually " the price of oil fell from approximately $1.70 a barrel in 1950 to $1.30" (Alain Anderton)However after 1970 people realised that oil is a very efficient and cheap source of fuel, which than lead to the revolution, and demand became elastic and price for oil began to increase "By 1973 the price of a barrel of oil had risen to approximately $3.00" (Alain Anderton) As a result before 1970 there was excessive supply for oil, but after 1970 their was excessive demand, which pressurised the middle east countries to produce more oil, which lead to increase the rate that oil was being consumed.As Opec holds a 38% of oil market shares, they tend to have a lot of oilgopolistic power in the oil industry, they can under power many non-Opec countries like America (U.S.A) who are the biggest oil consumers in the world. This can be explained by the amount of money America spend on fighting jet planes and many other different types of war arsenals. We can see the rate of oil consumption by the U.S.A in comparison to the world in (graph 2)The world oil market also had another threat in the 1970's where everyone had thought that oil was going too run out which made many non oil producing countries to purchase oil in advance, as well as buying long, this could also relate to the fact that it helped demand to become elastic. Nevertheless the oil didn't run out, as the fact know many oil companies think that oil will never run out because modern technology will be able to locate more oil, on the other hand many oil geologist are saying that we're not that far from the peak of oil production, after which oil producing will be decreasing year after year. Another threat in the 1970's was that the Middle East countries were threatening to cut off their oil supply, however after long discussion they came to an understandingMany American predict that oil will become an old energy resource and will not be needed, they guess that solar power and natural gases will be used,...

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