In 1960, President Dwight Eisenhower implemented a new quota system on Venezuelan and middle-east oil imports.  The goal of the quota was to increase the percentage of U.S. petroleum imports coming in from Mexico and Canada.  The result of the quota was falling domestic prices for oil exporters.  Venezuela was particularly irked over the system and instigated discussion between exporting nations.  At the Baghdad Conference in September of 1960, five developing nations, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, formed the Organization of the Petroleum Exporting Countries (OPEC).  The rest of the nations were added according to the following charts:

In January of 2009, Indonesia’s OPEC membership was suspended because they became net importers of oil.  Ecuador also had a separation with OPEC from 1992 to 2007.  Gabon ceased membership altogether in 1994.  The five founding members and 7 of the 9 left from the chart make up the current 12 OPEC countries.  This cartel of oil exporters is the single greatest entity effecting the crude market.  Short term changes in OPEC oil supplies can be a strong driving factor of price action.

Another common theory with growing public acceptance is the notion of peak oil.  As a native of Texas, Marion King Hubbert went on to study and eventually receive his Ph. D from the University of Chicago in mathematics and physics.  He worked at Shell as a geoscientist and would eventually become the most recognized name in his profession.  Hubbert developed the notion that the petroleum production base could only be expanded to an extent.  The time series oil production curve takes the shape of a bell curve.  Essentially when oil output is expanding, the growth in production increases at a fast pace.  As production peaks, the chart rolls over and flattens out before growth turns negative.  Once decline starts, production falls just as fast as it increased on the way up.

Peak oil theory, often called the Hubbert peak theory, was initially an obscure notion met with much criticism.  Hubbert developed models to fit his theory and in 1956 came to the conclusion that U.S. oil production would peak at the end of the 1960s or the beginning of the 1970s.  This prediction came true in 1970 and suddenly Hubbert and his peak oil theories were worth noting.  He also estimated that world oil production would peak in the mid 1990s at 40 billion barrels of annual production.  This prediction wasn’t as exact as his U.S. peak call, but considering the time frame of his projections, it was amazingly close.  At current, many analysts believe and the data supports the fact that we could be near global peak at current levels of production.  Hubbert’s estimates were off by a decade and just short of 10 billion barrels of annual global production.  This is a highly debated issue, but the implications of peak oil on the crude market could potentially reshape the world’s economy.

(OPEC.org: Brief History)

(Hubbert, M. King. “Nuclear Energy and the Fossil Fuels.” American Petroleum Institute Mar 1956 24 Mar 2009 <http://www.hubbertpeak.com/hubbert/1956/1956.pdf>.)

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