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OPEC Oil Price Drop and Economics
By: Cindy Wendland
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The only course in college that really was difficult to grasp was economics. How supply and demand and pricing could alter the course of businesses didn’t seem to add up. Our extra credit project included a situation and variables. By adjusting the variables properly, we could bring about the desired outcome and get the bonus points. The strategy of making small changes to all the variables didn’t work. The only strategy that achieved the desired outcome was changing one variable significantly. As OPEC is seeing oil prices drop, their future meeting to discuss action may require one significant variable change, but can they agree to do it?

The trouble with highly profitable, successful businesses is that more people want to share in the action. High oil prices made it advantageous for companies to look and drill for more oil. Whereas the Middle East was the “oil kingdom,” now the U.S. produces more oil than any other OPEC member except for Saudi Arabia. As we learned in economics, when prices are high, more competition enters. Similarly, when production or output of a product is high, higher than demand, prices fall. Lower prices translate into lower profits. In the past OPEC would encourage reduced production among members to get output below demand so that prices could rise. That worked in the past, but with the different economy, so much money is at stake and the financial stability of member countries is more tenuous. 

Pricing and supply are such critical variables in the oil market. In order for OPEC to significantly change a variable to get the desired outcome they are going to need cooperation from countries that don’t necessarily play well together. The players are interested in the same outcome, but may not be interested in the work required to get there. Member relationship management may prove to be the overriding variable in this case. Without it, OPEC may not get the bonus points or, more importantly for them, the oil profits to which they are accustomed.

   

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About the Author
Cindy Wendland has a background in marketing and finance. She is the creative director for an online men's health magazine, BrainBrawnBody.com, and she gets to write their leisure/travel blog. She is also a web designer helping her clients with online community engagement, websitesbywendland.com. Prior to her web years, she worked in pharmacy consulting.
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