The Competition between OPEC and Non-OPEC Countries about Oil Production - Essay Example

OPEC and non-OPEC countries competitive nature on oil production On the planet today, oil is considered as one of the most important resources. Since it’s a primary source of energy, oil gets considered as a form of power necessary to ignite the modern industrialized society also because owning or possessing it in itself is a form of power. Oil not only heats our homes, powers our cars and runs our factories, but it also drives military and political policy and national economy globally. Since it’s a resource that is valuable, petroleum market analysis are important to business people, academics and policy-makers alike.The oil supplies control has often been a persistent source of conflict of international affairs since the 20th century begun. Such conflicts differ in nature, ranging from leaders of oil-rich countries factional struggles to major inter-state wars over the control of vital oil zones, to territorial disputes over the possession of oil-laden border areas. As oil becomes more valuable and scarce, the severity and frequency of such conflict is likely to increase.in particular in non-OPEC and OPEC countries strategies have long puzzled and fascinated economists. It’s clear that OPEC wields much power and it behaves strategically over the world oil market. This article mainly discusses the competitive nature between OPEC and non-OPEC countries about oil production First and foremost, the reality is that when stripped to its essentials OPEC and non-OPEC producers are both essentially trying to sell their commodities global international markets that are competitive in nature, and to achieve this they have to adjust their prices to be reasonable and fair and this in itself creates the never ending-competition between the two factions as they are both aiming to capture wider markets. In addition, the oil industry in recent years has experienced increased integration, deregulation and consolidation in strategic markets. This means that while our economy is depends on competitive and secure energy supplies, the oil industry is always under constant pressure from all sides, and that creates a constant room for a constant fight between the two main responsible oil production parties and this constantly creates constant and intensified competition from non-OPEC and OPEC countries. Structural changes, moreover, have also turned upcoming oil companies to be a threat for the already established international players in both the OPEC and non-OPEC countries. This also creates constant changes and competition in the oil markets natural resource scarcity and global warming are putting constant pressure on the major two factions of players on the oil industry (Al-Qahtani, Balistreri and Dahl 123). Another reason for the constant competition between non-OPEC and OPEC countries is on the evolution of international oil supply concerns. The constant reinvention and access to convenient energy forms has been important for international oil subsequent sustainability and economic development. Since the 18th century this has been true for the industrial revolution in Great Britain as it is now to the economies that are emerging in both the OPEC and non-OPEC economies today. National economic prosperity since the 20th century has been heavily dependent on ease of accessing the oil supplies, beginning from the USA and extending to other parts globally, and it’s on this note that both the non-OPEC and OPEC economies fight to control this oil supply and therefore a constant cause for conflict and competition between the two producer’s factions. The real reality or significance in this is that the production of oil is steadily declining across the industrialized world in both absolute and relative terms, and so the consumer nations that are more advanced are having to search for alternatives in both the OPEC and non-OPEC economies alike at a time when the demand for the precious commodity is increasing exponentially in many emerging economies. Therefore, in the specific context of oil, the competition for supply sources is already evident across the globe and the indications are that this will continue for long, as the oil industry history enters a new era and thus, strife has to exist if a specific production faction wants to be dominant in the industry (Smith 146). In addition another factor that causes constant problems to the two groups are the qualitative issue involved with the oil production, in that a continuation of the move towards demand for lighter products is largely expected, as well as the trend towards offering significant cleaner products. It will be directly in line with the fact that the oil industry has a long history of successfully addressing concerns of improving air quality and local pollution and improving the oil related environment credentials. These can be used to an advantage to effectively guarantee the responsible parties monopoly over the commodity production and supplies due to their quality, and causes an issue between the two since they are constantly trying to reinvent themselves to be able to acquire more market shares (Kaufmann 107). Another significant factor that has affected the oil industry and created a need for competition is on the cartelization of the oil market by the OPEC economies during the last four decades (Bentzen 1376). OPEC even though it represents the major oil exporting nations interests it has often still been described as a cartel that is unstable, it has however been effective at times in forcing up the oil prices and therefore on behalf of the oil national companies sovereigns it has allowed the export nations to obtain substantial amounts of wealth which if compared to the oil prices that the oil market would suggest it is hundreds of billion dollars more. From this aspect the non-OPEC economies have to bring in the competition to ensure the failure of the cartels objective, which would ideally mean collapse of the oil prices, to possibly lower prices than the market that is monopolized would suggest. This means that it is necessary for the non-OPEC economies to bring in the competition in order to make the cartelization by the OPEC economies unstable, and to bring in the fluctuation on the oil prices making the market hard to predict any future trends, while making it level for all the involved stakeholders (Colgan 86). Another factor that brings in the competition is mainly on the fact that the non- OPEC economies are leading the way into new areas that the OPEC economies never considered, like in the fact that most of their production and based on areas that have high production costs and findings, as compared to most of OPEC economies that have most of their production from the lower cost conventional oil resources. becomes a disadvantage to them since, the OPEC productions would have a cost advantage over them even though the non-OPEC have ventured into new frontiers like in their pursuit for unconventional sources like oil sands and deep water offshore as sources of their commodities (Perrons 23). Even though the in developing new forms of technology for production the non-OPEC economies have been on the forefront, while often this has resulted in the higher supplies cost for them, it has a downside which opens an avenue for competition in that with the advancement in technology prices have to fall and this can eventually negatively pressure their prices which the OPEC countries often capitalize on. The price costs have also been mitigated in oil production industry mainly through the production of natural gas, which offers additional liquid gas supply also referred to as (NGLs). NGLs are gaining popularity as compared to the old crude oil forms mostly produced by the OPEC and non-OPEC countries.in recent years the rising NGLs has been as a result of the rising natural gas production. This has helped in mitigating the monopoly of stakeholders like the non-OPEC economies by offering alternative to their high priced crude oil, and has contributed highly to the total global supply of liquids, which has forcefully disturbed the market for the major players and thus, increased competition (Bartis, Camm and Ortiz 13). Expectations about future non-OPEC production supply also affect the oil production market. Final production reports for non-OPEC economies production from 2005 to 2008 were considerably lower as compared to what their projected forecast shown. This anticipation production reduction only left the option of relying on the OPEC production, and this forced a down fall on their spare capacity levels. While the revisions of prices expectations for the non-OPEC economies on a down ward trend contributed to increased pressure on the prices of oil (Woolsey and Korin 36). The slow down on the rate of non-OPEC supply expansion has also createdroom for competition. Partially this has been due to the lower price trend witnessed in the 1990’s and the delayed reaction to it, with the expenditure commensurate stalling mainly on expenditure meant for development and exploration gradually being felt. In addition, this trend has allowed the non-OPEC economies to cut into the supply for many years now and it has reached a point where they can now supply more than the OPEC economies and in addition, it’s at a much faster rate than initially predicted. This muscling in on the markets is a direct cause for competition and conflict between the two dominant factions of oil production (Lin 27). The productions of oil from economies that are outside the OPEC as of now represent about 60 percent of the global production of oil. With this strategic or key non-OPEC production centers include parts of the initial Soviet Union, North America, and the North Sea. If compared to the oil production from the OPEC economies, which are mainly based on cooperation, it’s evident that the conflict comes from the fact that the ,non-OPEC economies producers make more independent decisions based on their products as compared to their counterparts. In addition, as compared to the OPEC economies, where the (NOCs) national oil companies mostly control the oil production activities in their countries, the (IOCs) investor-owned companies are more active in the non-OPEC countries and this gives them more freedom to operate as compared to the latter and the profit is also widely shared. Mainly since IOCs main goal is to increase the shareholders’ value primarily while basing their decisions also mostly on economic factors and this is advantageous to all the involved stakeholders. While some IOCs work just like the NOCs, in the OPEC countries their main advantage is on the fact that they have other objectives like improving revenue or infrastructure, provision of employment, both things that influence positively their countries’ economies inn a much wider perspective. Due to this future supply capabilities for the non-OPEC economies is a certainty and it also seems to readily respond more to changes that are strictly market condition based as compared to their OPEC economies which raises their chances for competition (Mitchell, Marcel and Mitchell, 89). In conclusion, between the non-OPEC and the OPEC economies there is actually no hard, impenetrable line distinguishing them, if anything for an extended period now there has been a laxity on the initially hardened divides that existed. Currently, there has been major steps made towards a coexistence involving all the main players in the oil industry and OPEC has been the main driving force towards this as a way of ironing out the differences and competition that exist between them and encourage a better coexistence since all across the industry the perceived benefits will be evidently felt. Works Cited Al-Qahtani, Ayed, Edward Balistreri, and Carol Dahl. "Literature review on oil market modeling and OPEC’s behavior." (2008). Bartis, James T., Frank A. Camm, and David Santana Ortiz. Producing liquid fuels from coal: prospects and policy issues. Vol. 754. Rand Corporation, 2008. Bentzen, Jan. "Does OPEC influence crude oil prices? Testing for co-movements and causality between regional crude oil prices." Applied Economics 39.11 (2007): 1375-1385. Colgan, Jeff. "The emperor has no clothes: The limits of OPEC in the global oil market." International Organization (2013). Kaufmann, Robert K. "The role of market fundamentals and speculation in recent price changes for crude oil." Energy Policy 39.1 (2011): 105-115. Lin, C-Y. Cynthia. "An empirical dynamic model of OPEC and non-OPEC." University of California at Davis Working Paper (2007). Mitchell, John, Valérie Marcel, and Beth Mitchell. What next for the oil and gas industry? Royal Institute of International Affairs, 2012. Perrons, Robert K. "How does innovation happen in the upstream oil & gas industry? Insights from a global survey." (2013). Smith, James L. "World oil: market or mayhem?" The journal of economic perspectives (2009): 145-164. Woolsey, R. James, and Anne Korin. "How to Break Both Oils Monopoly and OPECs Cartel." innovations 3.4 (2008): 35-38. Read More