ORGANISATION OF PETROLEUM EXPORTING COUNTRIES

OPEC: The Oil Cartel



Oil is the leading energy source. Given its characteristics — liquid, high energy density, easy to store and transport, affordability — oil is a fuel of choice. It will continue to support the economic development of nations, contributing to an improvement in living standards and helping to lift millions of people out of poverty. It was strongly felt to initiate a series of a comprehensive dialogue between these oil rich countries. These discussions led the oil producing states to create the OPEC (Organization of Petroleum Exporting Countries), an intergovernmental organization established in Baghdad (Iraq), with the intent to influence oil prices by controlling production levels.

The aim of OPEC is to coordinate and unify the petroleum policies of its member countries, seeking to ensure the stability of oil prices in international markets, in order to avoid unnecessary and harmful fluctuations in prices, maintain a regular supply, efficient and economic oil consuming countries, and preserve the interests of producer nations (OPEC LTS 2010). Currently OPEC consists of the following countries: Saudi Arabia , Algeria, UAE, Indonesia, Iran , Iraq , Kuwait , Libya, Nigeria, Qatar, Venezuela. U.S. and Britain opted not to become regular bodies of OPEC(Adelman 1993 p 35-37). This tendency to act as a combine force to control prices by expanding or contracting supply gives OPEC a status of cartel.

At the same time producers like Saudi Arabia and Kuwait, with huge reserves and small populations fear that high prices will accelerate technological change and the development of new deposits, are reducing the value of their oil.

Several times we heard people calling it by attacking the OPEC cartel, to be able to benefit from its market dominance to inflate and keep prices high surface. It is imperative to first present the concept of cartel here. A cartel is a formal agreement between undertakings in an oligopoly (Zycher 2005). The agreement establishes the price to be charged by all companies and often also specify quotas or market shares of different companies. In most countries, cartels are illegal. OPEC is a clear example of a cartel (Gulen 1996 p34).

OPEC OIL SUPPLYAND PRICE DETERMINATION

OPEC countries currently produce about 40% of crude oil worldwide. These countries have partially used in production capacity, they are subject to production quotas set internally during the sessions of the body(Adelman 1993 p 35-37). OPEC represents the prototype of a successful ...