IntroductionOrigin & natureof OPEC (Organization of the Petroleum ExportingCountries)OPEC wasfounded in 1960 to coordinate the petroleum policies of its members, and to providemember states with technical and economic aid.
OPEC is a cartel that aims to managethe supply of oil in an effort to set the price of oil on the world market, in orderto avoid fluctuations that might affect the economies of both producing and purchasingcountries.As of 2016, the 14 countries accounted for an estimated 44 % ofglobal oil production and 73% of the world’s proven oil reserves; giving OPEC amajor influence on global oil prices that were previously determined by Americandominated multinational oil companies. It is notable that some of the world’s largestoil producer’s including Russia, china and the United States are not members ofOPEC and pursue their own objectives. OPEC’s main objectivesv Stable oil market, with reasonableprices and steady supplies to consumersv OPEC was made to make sure that theprice of the oil in the world market will be properly controlled.v Their main goal is to prevent harmfulincrease in price of oil in global market and make sure that nations thatproduce oil have a fair profitOPEC MembershipAccording to itsstatutes, OPEC membership is open to any country that is a substantial exporterof oil and that shares the ideals of the organization. Along with the fivefounding members, OPEC has 9 additional member countries, As of May 2017, OPEC’s members are Algeria, Angola, Ecuador, EquatorialGuinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), UnitedArab Emirates,and Venezuela, while Indonesia is a former member.
Two-thirds of OPEC’s oil productionand reserves are in its six Middle Eastern countries that surround the oil-rich Persian Gulf.Issues Motivated for choosing the study: (Oil — Life Blood ofWorld Economy)OIL – One of the life bloods of our Worldeconomy is oil. The impact of oil in today’s economy has been witness byconsumers many times. We have seen how human spending and travel got affectedas the price of oil fluctuates. In contrast almost all energies are generatedusing oil, to mention few; Cars, Trucks, railways, Plane, use oil in order torun their engine. Therefore if oil supply disturbed for one day we can imaginehow the global economy can be affected greatly.Competitive Dynamics of OPECv Before 1970No Major Role played by OPECv During 1970Power of Price setting shifted from MNC Oil Companies to OPECv By 1973OPEC countries changed the Pricing Systemv 1975-1985Oil Production Increase from 48% to 71%v Mid 1980Survival became uncertain.
Market shares fell from 52% 30% in 1985OPEC PoliciesOPEC’s influence onthe market has been widely criticized. Because its member countries hold thevast majority of crude oilreserves (about 80%) and nearly half of natural gasreserves in the world, the organization has considerable power in thesemarkets. As a cartel, OPEC members have a strong incentive to keep oil pricesas high as possible, while maintaining their shares of the global market. OPEC BasketAweighted average of oil prices collected from various oil producing countries.This average is determined according to the production and exports of eachcountry and is used as a reference point by OPEC to monitor worldwide oilmarket conditions.Does OPEC control the Oil Prices?Yes-, OPEC’s crude oil exports represent about 60 per cent of the crudeoil traded internationally.The price of crude oil is set bymovements on three major international petroleum exchange.v The New York Mercantile Exchangev The International Petroleum Exchange ¡n Londonv The SingaporeInternational Monetary Exchange.OPEC is trying to price the OIL inEuros rather than in Dollars- As the imports from Europe for OPEC countries isincreasing and the US dollar is becoming unstable ¡in the market.