Belfast Telegraph

Pump up the volume as sheikhs rattle and roll

Oil is a very emotive subject. It's been the root cause of wars, has taken those involved with it to both riches and rags and is something we rely on on a daily basis. It also operates in a very unique market place.

Its biggest producing members, which control 40% of the world's oil exports and therefore have a big sway on price, work together under the Organisation of Petroleum Exporting Countries (OPEC) umbrella in an effort to "safeguard the organisation's interests".

Their most obvious interest, and one which they've demonstrated as key in the past, is trying to support the oil price when it is, in their eyes, too low.

This practice has been called many things in the past, not least collusive, but that's for another time.

But when oil prices are too high, OPEC does something which goes against economic and business sense: they increase production as Saudi Arabia, Kuwait, United Arab Emirates and Nigeria are said to be doing.

More supply means prices come down.

Where's the sense in that?

Imagine your company is in their situation.

The price paid for your product has sky rocketed and your boss tells you you're going to reduce the volume you're selling.

You'd rightly label him a balloon and go looking for another job in a company that has an appetite to make money. Before you get the impression that some of the world's wealthiest nations are operating some sort of philanthropic charity, it pays to look at the impact their product has on the global economy.

Because oil's so crucial to the pretty much every business activity, they know that a prolonged period of high prices could be crippling and has the power to, as the marketing people would say, reverse growth.

If the global economy contracts, global demand for oil falls.

If you represent the bulk of the world's oil production it makes sense to make sure you don't cut off the hand that feeds you.

And now it makes sense.

The next time you go to the pump to fill up the tank you'll have a group of forward thinking oil producers to thank for the couple of pennies less it has cost than the same time last week.


From Belfast Telegraph