OPEC

RECENT NEWS
Financial Times  Jan 21  Comment 
Eni chief warns oil could hit $200 as a result of reduced investment by energy companies
BBC News  Dec 23  Comment 
Saudi Arabia's oil minister, Ali al-Naimi, says the Opec cartel will not cut oil production even if the price falls to $20 a barrel.
BBC News  Dec 21  Comment 
Oil-rich Gulf states vow not to cut crude production, blaming speculators and producers outside the Opec group for falling prices.
Financial Times  Dec 17  Comment 
Saudis have sent message that market not Opec should decide oil prices
The Straits Times  Dec 14  Comment 
December 15, 2014 1:46 AM INVESTORS will hold their breath this week to see if the steep slump in oil prices continues after crude hit fresh five-year lows last week as major producers said they expected less demand in 2015.
BBC News  Dec 14  Comment 
The head of Opec reiterates that the oil producers' cartel will not try to shore up plunging oil prices by reducing production.
Financial Times  Dec 3  Comment 
Collapse in oil price could suck $316bn from global investment
The Straits Times  Nov 28  Comment 
November 29, 2014 1:12 AM IT MAY look like the latest meeting of the world's biggest oil producers ended with a decision to do nothing but financial markets are reading plenty into the lack of action by the cartel.
OilVoice  Nov 28  Comment 
Oil price The oil price unsurprisingly fell after the Opec meeting concluded yesterday and has come down towards the level that I thought in yesterdays blog it should with no production cuts. Indeed
Agrimoney.com  Nov 28  Comment 
The dent to oil prices from a decision by Opec to keep production steady keeps ag markets busy. Palm oil drops - but not all ag movement is downwards




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OPEC stands for the Organization of the Petroleum Exporting Countries, an international cartel consisting of Iraq, Indonesia, Iran, Kuwait, Libya, Angola, Algeria, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Prospective members include Bolivia, Canada, Sudan and Syria who have been inivted by OPEC to join. The recent discovery of a sizeable oil field in the South Atlantic supports Brazil's possible application. The organization is based in Vienna and controls over 40% of the world's total oil production, and its member nations account for over 60% of the world's estimated oil reserves. Although OPEC is slowly beginning to lose control over crude oil prices, its holdings still give it a large amount of weight in price determination.

Brief Economics of OPEC

Why was OPEC formed in the first place? What gave OPEC the power to hit the news with their every decision, and what do they have to gain?

Unlike competitive industries such as garment production, oil production belongs to what is known as an Oligopoly, in which only a few producers produce most of the output. Businesses or Nations in an oligopoly produce almost the same thing and sell it at a price determined by demand and the overall supply of all the producers. However, in order to maximize profit return on every unit of output (hence economic profit), businesses in an oligopoly need to collude and reduce output together so that prices rise and overall revenue rises. How does overall revenue rise when demand should naturally drop on higher prices? Well, the problem is that the demand for oil all over the world is fairly inelastic, which means that the drop in demand is lower than the rise in price! They would rather sell one unit at $100 then 2 units at $45 each.

So, that is what OPEC does and why it exists. OPEC nations are in an oligopolistic industry trying to maximize profits through production collusion. In a free market, collusion is naturally illegal (hence a cartel) but who is to control NATIONS forming a cartel?

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