OPEC

RECENT NEWS
Financial Times  Apr 19  Comment 
Italian energy group says oil market lacks stabilising force after sharp price drop
Financial Times  Apr 16  Comment 
Sharp rise in supply led by Saudi Arabia
guardian.co.uk  Feb 23  Comment 
Cartel president Diezani Alison-Madueke says further price volatility would make it highly likely she would call an emergency meeting in the next six weeks Opec is preparing to call an emergency meeting as oil producing nations fret over the...
Financial Times  Feb 17  Comment 
Study says shale will fail to take off outside US
Financial Times  Feb 10  Comment 
Comments come amid bearish comments from Vitol and Genel
BBC News  Feb 1  Comment 
One of Libya's most senior energy officials, Opec representative Samir Salem Kamal, is released more than two weeks after being kidnapped.
The Times of India  Jan 26  Comment 
Oil prices at current levels may have reached a floor and could move higher very soon, Opec secretary-general Abdullah al-Badri said on Monday.
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.




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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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