OPEC

RECENT NEWS
The Times of India  May 25  Comment 
Earlier in May, OPEC failed to decide on a long-term strategy as Saudi Arabia objected to Iran's proposal that the exporter group aim for "effective production management". Now, the Sunni-Shia conflicts seem to be setting them at each other's...
Financial Times  May 18  Comment 
Sponsor of bill to investigate cartel advises Republican candidate on energy policy
guardian.co.uk  Apr 18  Comment 
It was always unlikely that Iran, newly back in the market, would be able to secure a deal with its big rival Saudi Arabia and others including Russia Opec struggles to speak with a single voice these days, so it was always a wobbly assumption...
Financial Times  Apr 15  Comment 
Lower prices and a more responsive market can only be welcome
OilVoice  Apr 14  Comment 
Opec left its major supply and demand forecasts for 2016 largely unchanged in todays Monthly Oil Market Report MOMR but warned that current negative factors seem to outweigh positive ones and pos
Financial Times  Apr 10  Comment 
Historian Daniel Yergin says group is unable to reverse the current slump in crude prices
Financial Times  Apr 6  Comment 
Saudi Arabia is country’s top supplier but rivals are not far behind
Financial Times  Feb 23  Comment 
Secretary-general highlights limits to any market rally
guardian.co.uk  Feb 17  Comment 
Tehran’s Opec envoy says that asking Iran to freeze its oil production is ‘illogical’ after Saudi Arabia and Russia agreed to hold output at January levels Iran has signalled it will take a tough line in talks among oil producers on...




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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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