OPEC Decision on Oil

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Among the most important commodities used in the world today is oil. The product is used in many aspects of life, with notably the production industry and the transport industry having the biggest share of use of this commodity.

Due to the high usage of this commodity, there is a necessity to ensure that the countries in production of them are bound by some rules so as to ensure that they do not take advantage of their ability to produce the product.

However, the fact that the countries operate in such a way that they have formed a cartel leads to a scenario where a decision by the group leads to a state where the world is at times forced to take the price and the output agreed by OPEC.

The decision by OPEC countries to maintain the oil production the same level that the prices were in existence has led to an economic concern all word over. It was the desire by the investors that the production of the commodity might be increased so as to increase the global economic growth.

The decision by OPEC means that the expected growth might not be realized as the energy sources are limited and they are usually needed for any growth to occur (Shore Para 1). Growth of the global economy requires that there are the necessary ingredients that are required to enhance the growth. In case one of the ingredients needed is not there, such a move means less likelihood of growth occurring.

As for this case, the fact that there was minimal production of energy, this minimizes the ripple effect it brings to the world economy. Such a move is a dangerous one as it reduces the capability of various sectors of the world economy, as they spend more on the commodity, hence having lesser money to spend on other production.

The move by OPEC is a clear symbol of the interrelation of the various sectors of the economy. A change on one sector affects the other sectors either positively or negatively. In this case, the reduction of the oil production has affected most of the sectors in the world in terms of the production levels. For example, the delivery of Gold has reduced in value. It is also notable that the effect not only affected Gold, but other values of precious metals were affected by the less production of oil as a commodity.

Depicting an opposite correlation, an example of how important oil affects other commodities is brought out. If there is no correction of the decision by OPRC, it means that there will be many changes not necessarily favorable to the Global economy.

Other beneficiaries by the move of OPEC were the consumption sector where products like corn and wheat increased in price. Though some of the part of the increase in price may be attributed to the changing weather conditions, it is notable that the increase in oil prices also had a part to play in increase of the price of the product. In short, the cost of living is much affected and rises up with the increase of the oil products due to inadequate supply of the commodity.

The fact that there is increase in price of the basic commodities like food products is a clear show of how cost of production leads to an increase in the prices of the commodities. Due to the fact that the changes that are brought about by control of the production of oil, it is only fair that some sort of control needs to be brought in place to stop it (Shore Para 8).

The control of production would mean that the consumers of the products are not put into consideration, and this is against what a market should do, i.e. involve the consumers when making any decisions. Aspects of global interdependence are also brought out by the fact that though the changes were made by few countries, the results are felt all over the world. Most economies experienced an increase in cost of living and to some, especially developing countries, poverty levels risk becoming higher than they were.

The fact that there are just only a few countries that are lucky enough to produce a precious commodity like oil has led to a monopolistic approach of these countries. The fact that the production of the commodity leads to a creation of cartel means that the producing countries are likely to protect themselves from competition.

It would therefore be fair to both the consumers and the producers to come to an agreement on how much should be produced, instead of only leaving the decision to the producers of the commodity, who are likely to make decisions favoring them. The situation would be handled well if the production by the countries was due to the bases of the demand that is needed by the world, but not just left to the producers who have the desire to benefit when higher prices come up.

Oil has become very important in the world today to such a point it can be deemed to be a necessity as production of other sectors is likely to reduce with less production of it.

Work Cited

Shore, Sandy. Commodities mixed after OPEC leaves output alone. 8 June 2011. Web.

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