From Tokyo, Japan and Changsha, China – this is Down to Business English. With your hosts Skip Montreux and Dez Morgan.
Look who's back … Dez Morgan!
Hi Skip. Yes, I’m back in China after spending two weeks in rainy old Scotland.
Not the greatest weather for you?
Not the greatest, no.
Hey, you were there for the UK election, weren't you?
No, I wasn’t actually. That happened just before my visit, in early July.
Ah. But there … there is a new government I see . Dez: Yes, indeed there is. The Labour party, which is left of center, scored a landslide victory over the right of center Conservatives. Oh, a landslide?
Labour won 412 seats to the Conservatives 124. So, yes I would call that a landslide.
Yeah, that is a major wipe out of Conservatives.
I don’t envy the new Prime Minister, Keir Starmer though. He and his party sure have a tough job on their hands.
Oh is that right?
By all accounts the Treasury is bankrupt, inflation and the cost of living crisis are ongoing, and now there are anti-immigration riots popping up everywhere.
I have been reading a little about those riots.
They started just as I was leaving the country. Right wing extremists are rioting over the number of immigrants entering the UK. Police cars overturned, buses set on fire, full scale riots in cities across all of England.
That is quite unsettling.
Oh, it is. It makes you ask, what's the world coming to?
So the riots are mainly in England, not in Scotland?
No, or should I say somewhat fearfully, not yet. Which is lucky as Scotland does rely on its tourism industry through the summer months. Especially Edinburgh.
Edinburgh has that famous comedy or theater festival in the summer.
The Edinburgh Fringe Festival. It's the largest arts festival in the world.
I don’t know if you caught it, but Samantha and I just reported on the topic of over tourism in Spain and Japan.
Yes, I did listen to it on the flight back to China. D2B 329. Edinburgh certainly falls into the same category. In fact, since September 2022, property owners in central Edinburgh have needed to apply to city hall for permission to offer their property as short term lets.
The same as Barcelona and Valencia.
Property prices have also risen considerably because supply is so limited as so many flats are already in the short term rental market.
Over tourism is no doubt a growing problem everywhere. So Dez, did you spend your entire vacation in Scotland? Or did you manage to go anywhere else?
As a matter of fact I drove all the way from Stirling down to Kent in England, where I am originally from.
Stirling to Kent. Is that very far?
By UK standards yes, it is far. Kent is south east of London and so from Stirling, if you’re lucky with the traffic, it's probably about nine hours by car.
Not exactly a short trip, but by Canadian standards not exactly a long trip either.
I didn’t realize Canada was quite that big.
Hey, it’s the second largest country in the world by area. The UK could fit into it something like 40 times.
Wow, a road trip must cost you a mint in petrol!
Fortunately gas prices, or petrol as you Brits call it, are considerably lower in Canada.
Makes sense as Canada is a major oil producer after all.
Yes, Canada is indeed a major oil producer. But I don’t think that is the reason gas prices are lower.
No?
No. I think it has more to do with higher taxes in the UK. In fact, Canada exports the majority of its oil to the US and China and imports its oil from many of the same countries as the UK does.
On the surface, that doesn’t seem to make a lot of sense.
I agree, on the surface it doesn’t. But the energy industry is complicated and there are many reasons for it being the way it is.
I'm starting to get the feeling that our report today might have something to do with Canada, oil, or maybe even both.
Nothing to do with Canada. But our report is indeed about oil. Today’s Down to Business English is part one of a two-part report on the Organization of Petroleum Exporting Countries, better known as OPEC.
A two-part report on OPEC — great stuff! Let’s do it.
Yes. Let’s get D2B … Down to Business with OPEC Explained: Part 1 – Origins and Strategic Purpose.
The Organization of Petroleum Exporting Countries — OPEC. It's a great sounding name, that’s for sure.
Yes, it does have a ring to it.
So, let’s start right from the beginning. What exactly is OPEC?
Well I think the name speaks for itself. OPEC is an organization of countries who export oil.
So, not only is it a great sounding name, it’s also very efficient. It tells you exactly what they are about.
Yeah, that it does.
When was OPEC established? And more importantly, why was it established?
OPEC was founded in 1960 and its first meeting was held on September 14 that year in Bagdad, Iraq.
64 years ago?! Wow, that’s even older than me.
That’s something you don’t get to say very often.
Very funny.
The five founding member countries were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. At that time, these countries together produced roughly 80% of the world’s oil supply.
80% of the oil supply — talk about having a corner on the market.
You know, you would think so, but until the formation of OPEC, these countries didn’t actually have that much of an influence on world oil prices.
They didn’t? That’s a little surprising.
It is. Throughout the 1950s, the international oil market was dominated by what was known as the Seven Sisters.
The Seven Sisters? Sounds like a Heavy Metal Rock band.
Not Twisted Sister, Dez. The Seven Sisters. This was a group of seven multinational oil companies: Anglo-Iranian Oil, Gulf Oil, Dutch Shell, Texaco, Standard Oil out of New York, Standard Oil out of New Jersey, and Standard Oil out of California.
I don’t think many people today know those names. Anglo-Iranian Oil is now BP, Royal Dutch Shell is still around but goes just by the name of Shell. But what about the others?
Gulf Oil, Standard Oil out of California, and Texaco are now part of Chevron and the two Standard Oils out of New Jersey and New York, they are now ExxonMobil.
Chevron and ExxonMobil, all household names today.
Well, in the 1950s these seven companies, these Seven Sisters, had significant control over oil prices and production. Much more control and influence than the countries who were actually producing the oil.
Thus the impetus for creating OPEC.
Exactly. OPEC’s founding countries wanted to assert more control over their natural resources and secure a more equitable share of the oil market.
They wanted to make sure they were getting their fair share of the pie.
Absolutely. OPEC also came at a time when there was a trend towards national sovereignty over natural resources and a move away from the dominance of Western oil companies.
I suppose that makes a lot of sense.
From day one, OPEC’s mandate has been to coordinate petroleum policies among member countries, secure stable and fair prices globally, provide a return on investment for oil investors, and to ensure there is a steady supply of oil to consuming nations.
Those are some pretty lofty objectives. How exactly do they go about doing all that?
Twice a year OPEC holds Ministerial Meetings. These are attended by high level government officials from each of the member countries. At those meetings they discuss and decide on the production levels each member country will abide by.
So they don’t directly set the price for oil.
No, not directly. The market does that. But by controlling how much crude oil enters the marketplace, well that directly impacts global oil supplies, obviously.
Which has a major influence on the market price of a barrel of oil.
Exactly.
And these Ministerial Meetings happen twice a year. Is that how often they adjust production levels?
Not necessarily. Another part of the OPEC structure is the JMMC, or the Joint Ministerial Meeting Committee. These meetings are attended by lower level government officials from OPEC countries. The JMMC meets on a more regular basis — I think typically every two months.
And what happens at these JMMC meetings?
The committee evaluates crude oil production data from recent months and makes sure all members and non-members are honoring their production quotas.
Members and non-members? What do you mean by ‘a non-member’?
Well as I mentioned, OPEC first started with five member countries. That has grown to 12 members today. But in addition to those 12 countries, there are also 10 more who, although they don’t belong to OPEC, have signed a Declaration of Cooperation, or DoC agreement with OPEC.
So really, for all intents and purposes, OPEC is made up of 22 countries.
That’s right. This larger combined group of member and non-member countries is informally known as OPEC+.
Just how much of the world’s oil supply then is produced by OPEC+ countries?
Well in 2022, OPEC+ countries accounted for 59% of world oil production.
And if they all stick together, that’s a lot of power.
It certainly is. The most recent Ministerial Meeting took place on June 3rd this year where they agreed to extend the production cuts that were put in place last year. But they also agreed to restore some production as early as October this year and gradually phase out the rest of the cuts over the next 12 months.
And they are doing all of this in an attempt to keep oil prices stable and profitable?
Yes. But it is a very difficult balancing act setting production quotas.
There must be so many things to take into account.
Yes, there are. Global demand for oil for example, oil supply coming from non-OPEC+ countries, economic conditions in OPEC and non-OPEC countries, geopolitical issues … and the list goes on.
Yeah, many things to consider. So just to recap — OPEC was founded in 1960. It started out as a group of five member countries. Over the years it’s grown to include 12 member countries and 10 non-member countries.
That’s right.
And their objective is basically to unify oil production levels in an attempt to influence or even control the price of oil.
Yes Dez, that is a good recap. Now, in part two of our report on OPEC, we will look closer at some of the key moments in OPEC’s history and talk about recent developments involving OPEC+.
Well, I look forward to that. But for now it’s time for us to get D2V … Down to Vocabulary.
Let’s kick off today’s D2V with the phrase ‘a landslide victory.’ A landslide victory is when someone wins a game or competition by a very large amount. Their score far exceeds their competitors' score.
In the introduction to today’s episode, I mentioned that the Labour Party won the UK election with a landslide victory. By using ‘landslide victory’ I was emphasizing that Labour didn’t just win the election, they won by a lot.
You often hear this phrase in politics or sport, where one side wins by a significant amount.
How would you use this phrase in a business context, Skip?
Recently, the accounting department in my company informed everyone that we had some extra money in the budget and that we should spend it by the end of this fiscal year.
Well, that’s always nice.
So my coworkers and I have been thinking about how best to spend it. We came up with a list of three options.
‘kay. What were they?
We thought we should spend the money on either new office chairs, some really expensive plants for the lobby, or dinner out for everyone and their partners.
I bet I know which option you went with.
Well, we took a vote and … a dinner out for everyone won by a landslide victory.
I thought as much.
What’s our next word?
Next on our D2B list is the idiom ‘to have a corner on the market’. When a business has the corner on the market, they have a significant or controlling share of that market. So much so that it's difficult for competitors to be able to succeed.
The best location to open a new shop is on the corner of two streets. By being on the corner, you get more foot traffic, more customers walking into your store because the location is convenient for them.
That’s a really good way to visualize this idiom. In today’s episode, when Skip told me that the founding OPEC nations produced 80% of the world’s oil supply, I commented that they had a corner on the market.
In other words, Dez thought they had such a significant share of the oil market that it was difficult for their competitors to succeed.
Exactly. When I hear this idiom, I always think of De Beers.
De Beers? The diamond company based in South Africa?
Yes. Although it may not be quite the case today, for the entirety of the 20th century, De Beers had the corner on the diamond market. They controlled all the diamond mines, distribution, and the price of diamonds globally.
That sounds like an interesting topic for a future D2B episode.
It does. I don’t think we’ve ever reported on the diamond industry before. You know what, I'll look into it. What's our next word?
Our next and final word for D2V today is the noun mandate. When you have a mandate to do something, you have been given the authority to carry out a policy or take a course of action on behalf of someone.
This is a high frequency financial term. Money managers are given a mandate from their clients to invest their money in hedge funds or stock indexes.
Very true. You often hear this in the financial world. But in today’s report I mentioned that from its very beginning, OPEC’s mandate was to coordinate petroleum policies, stabilize prices, and ensure a steady oil supply to consuming nations.
In other words, OPEC had the authority to do those things on behalf of all of their member countries.
Precisely. OPEC’s mandate gave it the power to take specific actions to influence the global oil market. Can you give us another example of mandate from the business world Dez?
You know who Bob Iger is don’t you?
Bob Iger? Sure. He is the CEO of Disney.
That’s right, and he has had a very interesting career with Disney. He first served as Disney’s CEO from 2005 - 2020. After stepping down in 2020 he handed the position over to Bob Chapek. But Chapek only held on to the job a very short time and Disney brought Iger back in 2022.
Disney could not live without him?
It is a long story. But the bottom line is to get Iger to return, the Board of Directors at Disney had to give him a mandate to do whatever he wanted with the company.
That sounds like another great topic for us to cover on Down to Business English in the future.
I agree. Skip, I give you the mandate to research that topic for an upcoming show.
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And that brings us to the end of D2B 332 - OPEC Explained - part one of our two part report on the Organization of Petroleum Exporting Countries. Stay tuned for part two where we will explore key events in OPEC’s history as well as recent news the organization is making.
D2B Members and Apple Podcast subscribers, the Bonus vocabulary for today’s D2B episode is in the works and will be released very shortly.
Apple Podcast subscribers, you will see it in the Apple Podcast app as soon as the episode drops. And D2B Members, it will be in your Members only RSS feed on whichever podcast app you use to subscribe to your Members only feed. So make sure that you are subscribed to that.
If you haven’t already subscribed to your Members-only feed, just go to your Member account page on the D2B website and copy and paste the RSS Feed into the podcast app of your choice.
The words and phrases we will focus on in the Bonus D2V episode will be — to do something full scale, the noun impetus, a share of the pie, sovereignty, and to abide by.
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Thanks for listening everyone. See you next time.
Bye bye.
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