Financial Times  6 hrs ago  Comment 
More than two years of sub-$50 oil hit the economy and threaten plans to diversify from crude
guardian.co.uk  Dec 1  Comment 
Markets welcome cartel deal to cut production but motorists told price rise will filter through quickly to the petrol pumps Oil prices have reached their highest level in a year amid hopes in financial markets that the Opec cartel will make a...
Financial Times  Dec 1  Comment 
Output of 32.68m barrels a day is almost 200,000 b/d higher than the new target
Financial Times  Dec 1  Comment 
US Treasury yields jump but Wall Street puts in mixed showing
Financial Times  Dec 1  Comment 
Deal will help ease supply glut but comes at a price for some cartel members
Financial Times  Nov 30  Comment 
Upbeat data also push up financial, materials and industrial shares
guardian.co.uk  Nov 30  Comment 
Cuts of 4.5% in production mark a ‘historic moment’, says the organisation. Let’s judge in six months’ time There is life is the old cartel yet, it seems. A year ago, obituaries were being written for Opec when, despite much bullish...
guardian.co.uk  Nov 30  Comment 
Saudi Arabia to bear brunt of curbs as 14-nation cartel of producers secures deal to stabilise world market The price of oil has surged by 8% after the 14-nation cartel Opec agreed to its first cut in production in eight years. Confounding...
Financial Times  Nov 30  Comment 
What is at stake and when the outcome of the cartel’s effort to cut output is expected
guardian.co.uk  Nov 30  Comment 
Oil producers have agreed to cut production by 1.2m barrels a day, to 32.5m, in an attempt to ‘stabilise the market’ and push crude prices higher. Closing summary: Will “historic deal” hold up to scrutiny? Deal finally agreed in...


Related Articles


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?

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki