Analysis of World Oil Price Trend

Running Head: PRINCIPLES OF ECONOMICS
Principles of Economics
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1PRINCIPLES OF ECONOMICS
Table of Contents
Introduction................................................................................................................................2
Analysis of world oil price trend................................................................................................2
Oil price from 1970 to 1980 (short run).................................................................................3
Oil price from 1981to 1990 (long run)...................................................................................5
Conclusion..................................................................................................................................6
References..................................................................................................................................7

2PRINCIPLES OF ECONOMICS
Introduction
OPEC appeared as an international organization since 1960. Initially top five
exporters were active members of OPEC. Gaining support from top oil exporters OPEC
gradually became one of the largest institutions having significant power to manipulate price
and supply of oil in the global market. In order to increase profitability member nations,
OPEC took the decision to increase oil price since 1970. Global economy faced serious
trouble in the beginning years of price rise (Griffin & Teece, 2016). However, the initial
success from price increases did not sustain for a long period. Realizing failure of decision
OPEC members finally decided to make a downward revision of price since 1980. The
inability of OPEC members to sustain high price for a significantly long period can be
explained using the concept of demand, supply and elasticity.
Analysis of world oil price trend
The period of 1960 was the period of formation of OPEC. During this decade, oil
price almost followed a stable trend with price varying within the affordable range. The
advent of OPEC was expected to contribute to the stability by forming a cartel in export
market. From 1968 to 1970 inflation adjusted oil price remained around $23 per barrel.
Purchasing power of people remained also at a stable level. By the time, OPEC grew stronger
and more members joined the organization. As OPEC appeared as a strong organization in
the global market, it thought of utilizing its power in manipulating word oil price. This led to
an oil price glut since 1973 (Kisswani, 2014). The figure below shows trend in global oil
price from 1970 to 1990.