guardian.co.uk  2 hrs ago  Comment 
Investors cautious on outlook for crude ahead of November producers meeting Leading shares have recovered some ground but are still in negative territory, with oil companies weighing on the FTSE 100. BP is down 6.85p at 486.65p while Royal...
Financial Times  Oct 11  Comment 
Impact of planned production cut ‘difficult to assess’, says International Energy Agency
Financial Times  Oct 11  Comment 
Level expected to be maintained until November meeting
The Economic Times  Oct 7  Comment 
Central bankers are struggling to live up to expectations. They are undercutting their positions by introducing unnecessary confusion into policymaking.
guardian.co.uk  Sep 29  Comment 
Riyadh’s drive to kill off US shale has failed but it will take real cuts and more global demand for oil to return to $100 a barrel Saudi Arabia’s gamble has failed. That, rather than the spike in oil prices, is the real story to emerge from...
Financial Times  Sep 29  Comment 
Promise to scale back production sparks rise in crude-linked indices in Europe, Asia and the US
Financial Times  Sep 29  Comment 
Reports of the cartel’s demise were exaggerated — but who will cut output, and when?
guardian.co.uk  Sep 28  Comment 
Energy shares bolstered by surprise news of oil producers’ first agreement to cut production since 2008 Oil prices settled up nearly 6% on Wednesday after the Organisation of the Petroleum Exporting Countries (Opec) struck a deal to limit...
Financial Times  Sep 28  Comment 
Financial Times  Sep 28  Comment 
Crude prices climb more than 6% as cartel ministers reach consensus on production curbs
Financial Times  Sep 28  Comment 
As the production cartel gathers traders remain sceptical that a freeze will be agreed


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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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