1950s: Profit-sharing By the 1950s, fixed royalty payments had been replaced by 50-50
profit sharing arrangements following the
1950 ARAMCO deal. The use of the posted price as a pricing basis for the 50-50 share agreements varied from country to country; the posted price was not adopted as the basis in Saudi Arabia until 1955, but had been used in
Iraq since the
Iraqi governments revised
agreement with the
Iraqi Petroleum Company was negotiated in 1952.
OPEC After oil companies lowered the posted price, five oil producing countries formed
OPEC in 1960: Venezuela, Saudi Arabia, Kuwait, Iran and Iraq. In 1970 the price of crude oil was still $1.35 and the supply of oil exceeded demand. Due to a decline in value of the
US dollar relative to
gold in 1971, the Tehran Agreement of 1971 was amended to include an 8.49% increase in the posted price of oil. Additionally, the amended agreement further stipulated that every
quarter the posting price would be adjusted based on an
index that would be calculated by comparing value changes in the currencies of nine major industrialized countries relative to the dollar. However, this indexing arrangement was canceled after the
1973 oil crisis. The Tripoli Agreement of 1971 was signed by the OPEC members who exported across the Mediterranean, rather than through the
Persian Gulf — namely
Libya,
Algeria and Iraq; not only did the posted price increase, but the profit sharing arrangement went from 50-50 to 55-45 in favor of the producing countries. During the 1973 oil crisis, OPEC turned down an offer to increase the posted price by 15%, instead raising it from $3.00 to $5.11 per barrel. Arab oil producers also decided to cut production and
embargoed the United States. Soon after, at a meeting in Tehran in January 1974, OPEC raised the posted price again — this time, to $11.65 per barrel. Between the start of the
Arab-Israeli War of 1973 and the Tehran meeting the posted price of oil increased four-fold. A number of studies were published in the 1980s that attempted to show
causality between OPEC's posted price and the market price of oil. ==Price fluctuation==