Introduction
OPEC, or the Organization of the Petroleum Exporting Countries, is an organization that was formed by Saudi Arabia for the purposes of creating a global body for the general oversight of the oil industry. Prior to the formation of OPEC in 1960, the global oil market was much less fully integrated, and countries that produced oil were able to largely behave in their own self-interest without concern for the other countries of the world. Because there are only thirteen countries that are responsible for approximately 40% of the world’s oil production, cooperation between these countries became important as the geopolitical environment changed. OPEC is very powerful to this day, and has been referred to by some as a “cartel;” however, regardless of the geopolitical reality of the organization, there is no doubt that member states control a significant amount of the world’s oil reserves and resources.
Purpose Statement
The role of OPEC remains contentious to this day, and there are many discussions in all manner of academic disciplines regarding the role of OPEC in the current economic structure of the world. The OPEC member states are Venezuela, the UAE, Saudi Arabia, Algeria, Angola, Ecuador, Iran, Indonesia, Iraq, Libya, Kuwait, Nigeria, and Qatar. Many of the world’s largest powers are not party to this group, but still the actions of OPEC has a significant impact on the world as a whole. The purpose of this research will be to investigate the interactions between a number of important variables in the oil industry, including the proven reserves of oil that OPEC has access to, the oil production per day of the OPEC member countries, and the price per gallon of oil in the United States. The data will be analyzed using multiple regressions and ordinary least squares regression. The data collected will be the most current information available for the oil industry and the gas market in the United States.
Research Question
The research will address the following questions using quantitative assessment strategies:
What is the relationship between the proven reserves of oil that OPEC has access to, the oil production per day of the OPEC member countries, and the price per gallon of oil in the United States?
Can this relationship be used to model long-term trends in median gas prices in the United States?
Variables for Discussion
The variables for discussion in this document will be oil production, proven reserves, and the median price of regular gasoline per gallon in the United States of America. Of course, gasoline prices vary significantly across the United States, and this is why the median price for gasoline has been chosen for discussion; by choosing the median price as one of the variables rather than the average, the analysis can minimize the effects of extremely high or extremely low gas prices in certain parts of the United States. These variables will be assessed quantitatively using multiple regressions and ordinary least squares regression.
Conceptualization, Operationalization, and Variable Choice
There are a number of important issues associated with conceptualization and operationalization of the chosen issues for discussion. One of the benefits of working with data sets regarding oil and OPEC is that there is a plethora of information available regarding the current situation; information about OPEC and oil availability and production is constantly updated and changing because of the importance of oil to the global economy. However, this information also comes with a significant problem: there is so much information that narrowing down important pieces of the information can be difficult. This is why the variables were chosen so specifically for comparison—by choosing very specific variables, the research can be appropriately targeted without lapsing into difficulties with an overabundance of information for analysis. In addition, a number of different years will be tracked, so a more complete conceptualization of the trends associated with OPEC countries, production, and gas prices can be determined.
Literature Review
Saudi Arabia is the de facto leader of OPEC, and there are a number of Middle Eastern countries that make up the governing body. The organization is responsible for creating “crude oil benchmarks,” or the appropriate price for a barrel of crude oil. Of course, this means that the organization has an incredibly significant and powerful hold over the global economy, particularly the global oil market. In fact, even GDP can be significantly affected by the price of crude oil; to misunderstand the importance of the oil market on the world economy as a whole would be to greatly misunderstand humanity’s reliance on oil for day-to-day processes and development. Kilian (2008) writes, “Exogenous oil production shortfalls are of limited importance in explaining oil price changes 40 both overall and during crisis periods. This result is robust to the choice of the exogenous oil supply shock measure. Of the episodes studied, only the 1980/81 oil price increases can be attributed to exogenous oil supply disruptions.” Supply disruptions in crude oil have led to destabilizations of the economy in the United States a number of times—Kilian (2008) analyzes the oil market struggles of the 1970s, but more recently—in the years following the September 11th attacks—increases in the price of oil also changed the internal markets in the United States.
Understanding the relationships between OPEC and the international oil industry is a complex field, and as such, there have been many studies done on the interactions between the global oil industry and the economies of various countries. However, many of these studies are wide-reaching, and do not focus on specific interactions between concrete variables within the system. Many of the pieces of literature, in addition, rely on geopolitical analysis for foundational understanding—rather than relying on a quantitative analysis of the structures associated with OPEC.
Possible Sources of Qualitative Information
As an organization, OPEC produces huge amounts of data each year. There is a plethora of primary source material available that will provide researchers with the information needed for analysis; the biggest struggle will be consolidating the most important information into the report and removing the extraneous information from the project. Currently, OPEC produces its own reports; however, there are also third parties who are focused on verifying the information that OPEC provides to the global community as a whole.
Because OPEC plays such an important role in the international community, there have also been a number of secondary sources—both reports and peer-reviewed sources—that analyze the role that OPEC plays in the open marketplace. The report will focus on the primary sources and the raw data that is available, but an analysis of the appropriate qualitative factors associated with OPEC will also be conducted over the course of the project. Preliminary literature reviews suggest that many researchers have analyzed the role of OPEC in the international community from a variety of different points of view; many of these pieces have investigated the geopolitical role of the organization.
References
Alhajji, A. Fayçal, and David Huettner. "OPEC and other commodity cartels: a comparison." Energy Policy 28, no. 15 (2000): 1151-1164.
Al‐Attar, Abdulaziz, and Osamah Alomair. "Evaluation of upstream petroleum agreements and exploration and production costs." OPEC review 29, no. 4 (2005): 243-266.
Ghouri, Salman Saif. "Oil demand in North America: 1980‐2020." OPEC review 25, no. 4 (2001): 339-355.
Kilian, Lutz. "Exogenous oil supply shocks: how big are they and how much do they matter for the US economy?." The Review of Economics and Statistics 90, no. 2 (2008): 216-240.
Kilian, Lutz. "Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market." (2006).
Krichene, Noureddine. "World crude oil and natural gas: a demand and supply model." Energy economics 24, no. 6 (2002): 557-576.
Mabro, Robert. "On the security of oil supplies, oil weapons, oil nationalism and all that." OPEC Energy Review 32, no. 1 (2008): 1-12.
Ramcharran, Harri. "Oil production responses to price changes: an empirical application of the competitive model to OPEC and non-OPEC countries."Energy economics 24, no. 2 (2002): 97-106.
