The world oil market has undergone tremendous change in the past three decades. In the 1960s, the price of oil was fixed by the major international oil companies. The early 1970s saw the transfer of property rights from these multinationals to the host countries, which was the start of a new era in the oil industry. Middle Eastern countries, through the Organization of the Petroleum Exporting Countries (OPEC), were key players in the transformation of the market since they owned the bulk of world crude oil reserves. The series of oil price increases in 1973-1974 was a hallmark period for the oil market because it coincided with the transfer of property rights to the host countries from the major oil companies that had operated the industry up to that time. Following those events, the determination of oil prices were in the hands of OPEC, which carried out this function by setting an official selling price, and leaving member countries to adjust their selling price in relation to this marker.
Also the marker crude oil price was usually accompanied by quota allocations to the member countries. The system worked relatively well until the early 1980s, eventually falling victim to its own success (Okogu, 2003).
Recent Developments and Outlook in Oil Markets
Global demand for oil is surging. Supplies are tight and geopolitical jitters are sending daily shock waves through the market. As a result oil prices are hitting record highs. OPEC's recent decision to cut production demonstrated that the world's biggest oil cartel will defend higher oil prices in spite of concern about the impact of $40 a barrel on economies. OPEC has made the decision to cut the excess output of 1 million barrels a day above the official quota of 27 million barrels a day. They also...