Anoligopolyis a market form which a market or industry is dominated by small number of sellers. The Organization of Petroleum Exporting Countries (OPEC),is best defined as an oil company which is located in Vienna,Australia. It was established in Baghdad in 1960 to coordinate the petroleumproduction and export policies of its members.
What does OPEC stand for and what does it do?
What does OPEC stand for? OPEC is an abbreviation meaning Organization of the Petroleum Exporting Countries. The intergovernmental organization stabilizes the oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers.
What is OPEC and its impact on the economy?
OPEC is an organization that controls petroleum production, supplies, and prices in the global market. The group was established in 1960 and is made up of 13 different oil-producing companies. It holds considerable influence in the marketplace and is often criticized for inflating oil prices to the benefit of its members.
What are the aims and objectives of OPEC?
OPEC and Its Goals,Members,and HistoryRecent Decisions. On December 7,2018,OPEC agreed to cut 1.2 million barrels per day. …OPEC’s Three Goals. OPEC’s first goal is to keep prices stable. …OPEC Members. OPEC has 13 active members. …History. In 1960,five OPEC countries allied to regulate the supply and price of oil. …Non-OPEC Oil-Producing Countries. …OPEC-Russia Oil Alliance. …
What is OPEC and why was it created?
When OPEC was formed in 1960, its main goal was to prevent its concessionaires—the world’s largest oil producers, refiners, and marketers—from lowering the price of oil, which they had always specified, or “posted.” OPEC members sought to gain greater control over oil prices by coordinating their production and export …
What Does OPEC Do?
OPEC meets twice a year at its headquarters in Vienna, Austria, usually once in late spring and again in late fall.
What Is OPEC’s Role After The Shale Revolution?
The shale revolution that began in earnest last decade has unleashed a flood of oil on world markets, threaten ing OPEC’s influence .
What happened to the oil prices during the Arab-Israeli War?
over its support of the Israeli military. This quadrupled oil prices and led to gasoline shortages. There was a second oil shock in 1979 when Iranian production fell during the Islamic Revolution.
How does high oil prices affect demand?
But high oil prices can put downward pressure on demand and hurt sales. Also, high prices spur competing, non-OPEC countries to pump more oil by making more expensive sources, like U.S. shale oil, more profitable. High prices can encourage oil consumers to reduce dependence on oil by developing local sources and shifting to alternative energy.
Why are OPEC producers notorious for cheating?
However, OPEC members are notorious for cheating on their quotas as there is no way to punish violators. So other producers retaliate by cheating themselves.
Where does OPEC oil come from?
Most of OPEC’s oil production comes from state-run oil companies , making it easier for officials to control output, unlike in the U.S. where companies are the dominant force and make independent production decisions. However, OPEC members are notorious for cheating on their quotas as there is no way to punish violators.
Why did Qatar leave OPEC?
But Qatar said in December it plans to leave OPEC to focus on natural gas development, though analysts saw the move as motivated by its political dispute with Saudi Arabia and other Persian Gulf members. Saudi Arabia, the world’s largest oil exporter and OPEC’s largest producer, is seen as the cartel’s de facto leader.
What Is the Organization of the Petroleum Exporting Countries (OPEC)?
The term Organization of the Petroleum Exporting Countries (OPEC) refers to a group of 13 of the world’s major oil-exporting nations . OPEC was founded in 1960 to coordinate the petroleum policies of its members and to provide member states with technical and economic aid. 1 OPEC is a cartel that aims to manage the supply of oil in an effort to set the price of oil on the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries. 2 3
What is the role of OPEC in the world?
OPEC aims to regulate the supply of oil in order to set the price on the world market. The arrival of fracking technology for natural gas in the U.S. has reduced OPEC’s ability to control the world market.
Why is OPEC important?
First, it promotes cooperation among member nations, helping them achieve some degree of political hostilities. And because the organization’s main goal is to stabilize oil production and prices, it is able to exert some influence over production from other nations. 14 ?
Why did OPEC reduce production?
However, starting in January 2019, OPEC reduced output by 1.2 million barrels a day for six months due to a concern that an economic slowdown would create a supply glut, extending the agreement for an additional nine months in July 2019. 11
What is the mission of OPEC?
According to the OPEC website, the group’s mission is “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic, and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital …
What caused the oil price to drop in 2020?
Demand for oil dropped during the global crisis, which began in 2020. Producers had an overabundance in supply with no place to store it, as the world experienced lockdowns cutting down demand. This, along with a price war between Russia and Saudi Arabia, led to a drop in oil prices. As a result, the organization decided to cut production by 9.7 million barrels per day between May and July 2020. 12 Oil prices continued to experience volatility, leading OPEC to adjust production levels to 7.2 million barrels per day as of January 2021. 13
How does fracking affect oil prices?
As a result, worldwide oil production increased and prices dropped significantly, leaving OP EC in a delicate position.
Is Russia an OPEC country?
Russia is not a member of the Organization of Petroleum Exporting Countries (OPEC) but is a key fellow exporter and typically an ally to the group. Some members of OPEC insisted that non-OPEC allies, such as Russia, join in with production cuts.
How many countries are in OPEC?
OPEC’s 14 Member Countries are Algeria, Angola, Congo, Ecuador, Equatorial Guinea, Gabon, the Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates and Venezuela.
What country has the most oil?
Venezuela has proven oil reserves of 303.2 billion barrels (17.9% of world total), Saudi Arabia has proven oil reserves of 266.2 billion barrels (15.7% of world total),Canada has proven oil reserves of 168.9 billion barrels (10% of world total).
What are the 7 GCC countries?
It was established in 1981 and its 6 members are the United Arab Emirates, Saudi Arabia, Qatar, Oman, Kuwait and Bahrain.
What is the acronym for the Organization of the Petroleum Exporting Countries?
Organization Of The Petroleum Exporting Countries (OPEC) – A Brief Overview. OPEC is an acronym for the Organization of the Petroleum Exporting Countries. It is a permanent, intergovernmental organization, created at the Baghdad Conference in September 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Currently, it has 13 members.
Why did Saudi Arabia form the Organization of Petroleum Producing Countries?
Despite strong opposition from the US, Saudi Arabia, along with other Arab and non-Arab oil producers, formed the Organization of Petroleum Producing Countries to get the best price possible from major oil corporations. Originally, Arab nations advocated for Beirut or Baghdad to be the headquarters of the OPEC but under strong objections …
Why do countries in OPEC have to adjust their oil productions?
The OPEC Member Countries adjust their oil productions activities in order to bring stability to the petroleum market and help manufacturers get a good return on their investments. This policy is also designed to ensure that oil consumers continue to receive stable supplies of oil.
How does OPEC affect prices?
How OPEC affects prices. In addition to production cuts, one of the levers OPEC uses to impact prices is production quotas. In 1982, OPEC introduced mandatory quotas among its member nations to control supplies. In doing so, it became a price-setting cartel instead of a group of price-taking commodity producers.
Why did OPEC fail to strike a deal?
However, the groups failed to strike a deal because not all members were on board.
What happens when OPEC speaks?
When OPEC speaks, the oil market listens . While it cannot control the market price of oil, it can influence its direction. This impact leads to some pretty wild swings in oil prices, which then affect the profits oil companies’ earn from production.
What is the purpose of OPEC?
OPEC’s purpose is to: Co-ordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry. While OPEC’s objective is to maintain order in …
What is the target price of oil for OPEC?
Before the recent collapse in crude prices, there was a generally held belief that OPEC wanted crude to stay above $100 a barrel. While OPEC never officially sets a target price for oil, many of OPEC’s member nations need a certain oil price to balance their budgets. For example, according to the International Monetary Fund, Saudi Arabia needs oil to average $106 while ING Bank data suggests Ecuador, Nigeria, and Venezuela need oil above $120 a barrel.
What is the most famous example of OPEC?
While OPEC’s objective is to maintain order in the oil market, that has not always been the case. The most famous example is the Arab oil embargo. In Oct. 1973 a group led by the Arab majority of OPEC, as well as non-members Egypt and Syria, declared a steep cut in oil output and an oil embargo against the U.S. and other nations that supported Israel in the Yom Kippur War. This led to a sharp increase in oil prices, from $3 to $12 per barrel, causing panic and a period of energy rationing.
How much oil does Saudi Arabia need?
For example, according to the International Monetary Fund, Saudi Arabia needs oil to average $106 while ING Bank data suggests Ecuador, Nigeria, and Venezuela need oil above $120 a barrel. This belief that oil would stay reasonably stable led oil companies to make huge bets on large oil projects.
What is the main focus of the Oligopoly Market Model?
The main focus in this essay is to explain the characteristic of the Oligopoly Market Model and explain how the dynamics of the Oligopolistic market can influence the price of a product and different strategies used by firms together to create an inelastic demand for the product to optimize profits
Why does the OPEC cartel keep the oil price high?
The OPEC cartel has strategically maintained to keep high price in an oil market under pressure from rising demand. It has encountered short run capacity constraints in the past, but OPEC did not increase its oil output or bring the price to a lower manageable level. On the contrary OPEC cut the oil output intermittently, this behavior is to test the limit of the market and what can it bear in terms of price increase.
What is an oligopoly?
An oligopoly is a market dominated by a few producers, each of them has control over the market. The word ‘Oligopoly’ is derived from Greek words oligio, meaning ‘few’ and polein, meaning ‘to sell’. The few leading dominant firms have a high level of market concentration in the Oligopoly structure. Oligopoly is best defined by the behavior of the firms within a market than its market structure. Generally an oligopoly exists when the few leading firms have nearly 60% of the market share and when the demand is inelastic and accounts for the maximum sales.
Why can’t firms control the price of a product?
In practice, if firms decide to monopolize existing sources of supply, they cannot control the price, because they do not control demand and the prospect of market entry by rivals is high. High prices will induce lesser demand and lesser consumption and buyers will seek to alternative inputs, thus making the entry of the competition into the market higher. A dominant producer or supplier has a choice to either harvest profits in the short run by inflating price at the expense of losing its dominance in the future, or it can decide to charge a moderate price that sustains its market position and generates supra-competitive profits over time. Until the end of 2003, OPEC pursued this strategy with an explicit price band of $22 to $28 per barrel.
What are the different market structures?
There are a number of market structures like: Perfect Competition Model; Monopolistic Model; Monopoly and Oligopoly with each having their own characteristics for the economists to understand why each business behaves differently in that market.
What is product branding?
Product branding: Each firm in the market sells a differentiated product and has its own niche in the market.
What is the difference between market economy and microeconomics?
Microeconomics entails the economic activity of consumers, producers or group of producers and consumers and the market in which they interact. It is study of buyers, sellers, prices and profits. Market economy refers to the developed and the industrialized economies in the world.
What happened to Saudi Arabia’s oil prices since 1973?
Since the 1973 Arab oil embargo, Saudi Arabia has managed to call the shots as far as oil prices are concerned, by controlling supply. All major oil price fluctuations in recent history can be attributed to changing production levels in Saudi Arabia, along with other OPEC nations. The 15 Largest Oil Exporters and the 15 Largest Oil Producers in …
How does OPEC affect oil prices?
Because of this market share, OPEC’s actions have a huge influence on international oil prices. In particular, OPEC’s largest producer of crude oil, Saudi Arabia, has the most frequent effect on oil prices. Historically, crude oil prices have seen increases in times when OPEC production targets are reduced.
How much oil does OPEC produce?
OPEC member countries produce about 40% of the world’s crude oil. Additionally, OPEC’s oil exports represent about 60% of the total petroleum traded internationally, according to the United States Energy Information Administration. 1 ?.
Why is crude oil important to the global economy?
Crude oil holds a prominent position in the global commodities market because oil price changes impact the global economy. Thus, those countries or groups that produce crude oil also impact economies worldwide. Oil prices are largely dependent on two factors: geopolitical developments and economic events. These two variables can lead …
What are the factors that affect oil prices?
Oil prices are largely dependent on two factors: geopolitical developments and economic events. These two variables can lead to changes in oil demand and supply levels, which drives oil price fluctuations from one day to the next. For instance, the 1973 Arab oil embargo, the 1980 Iran-Iraq war, the 1990 gulf war, the Asian financial crisis of 1997, …
What are some historical geopolitical developments that have significantly impacted oil prices?
For instance, the 1973 Arab oil embargo, the 1980 Iran-Iraq war, the 1990 gulf war, the Asian financial crisis of 1997, and the global financial crisis of 2007 to 2008 are some of the historical geopolitical developments that have significantly impacted oil prices.
Which country is the largest oil producer in the world?
Within the OPEC group, Saudi Arabia is the largest crude oil producer in the world and remains the most dominant member of OPEC. It is also the leading exporter of crude oil globally. Each time there is a cut in Saudi oil production, there is a sharp rise in oil prices, and an increase in Saudi oil production stimulates a drop in oil prices. 7
What are the factors of crude oil classification?
4 factors of crude oil classification. Viscosity defines the ability of oils to flow. Higher viscos ity makes oil more difficult to flow. As such, it takes much energy to pump it from the ground. Volatility defines the speed of oil evaporation. Higher volatility requires additional measures to monitor the environment during …
How many different types of crude oil are there?
Did you know that there are over 160 different types of crude oil traded on the market? West Texas Intermediate (WTI), Brent Crude, OPEC Reference Basket, Dubai Crude, Bonny Light and Urals are just six of many. Luckily, you don’t have to learn the whole list.
What is WTI oil?
WTI, often referred to as US Crude, is a premium-quality crude oil, highly valued around the world. It’s a common belief that more and better gasoline may be refined from one barrel of WTI than from any other type of oil traded on the market. West Texas Intermediate is a light and sweet crude oil refined in the United States, …
What is the color of crude oil?
Still, often referred to as the ‘black gold’, the color of different crude oils may also vary from a light, golden yellow to dark black.
Where does Brent crude come from?
Brent Crude is also an important benchmark, which typically serves as a benchmark for oil prices around the world. Mostly extracted from the North Sea, it consists of Brent Blend, Forties Blend, Oserberg and Ekofisk crudes – known as the BFOE Quotation.
What is the least volatile oil?
Heavy fuel oil. The least volatile, the most toxic and viscous type of oil. It is mainly used for the following crude oil products: the heaviest 3, 4, 5 and 6 fuel oils and heavy marine fuel.
What is the meaning of toxicity in oil?
Toxicity defines the poisonous and harmful effects of oil on the environment, people and wildlife during the production and refinement process.
Why are cartels bad for the oil market?
Cartels are normally considered to be a negative aspect of a market, they discourage competition, restrict supply and raise prices for consumers. In the Case of OPEC, non-OPEC producers do not necessarily oppose the cartel activities. Because OPEC attempts to keep the price of oil artificially high, the non-OPEC producers benefit as well as they can sell their oil at the same price. While there are different grades of crude oil, when crude hits the market it is essentially the same and they are all sold for more or less the same price. Some crude is more expensive to refine for market sale such as Canadian crude from the Alberta oil sands and some is cheaper however, the grade makes it to the market is undifferentiated from different crude of different origins.
How does quotas affect OPEC?
OPEC countries often, if not always, agree to these quotas then break them by ramping up production in an attempt to capture more of the market for themselves. This practice both disrupts the cohesion of the cartel and reduces the amount of trust between the member nations. Essentially, member nations ‘cheat’ to make more money. Proof of this is the defections of Ecuador and Gabon which both suspended their membership in OPEC for periods of time (1992-2007 and 1995-2016 respectively) seeking a release form the terms of the cartel. Both sought to increase their production levels free from quotas.
What is the role of OPEC in the oil market?
The founding members which include Iran, Iraq, Kuwait, Saudi Arabia and Venezuela agreed to create an organization that could bring some degree of stability to the world oil market. OPEC agreed to coordinate energy policies to ensure a fair price for their exported oil and a steady supply to the market. The governments of the OPEC countries agreed to coordinate with petroleum firms (both state owned and private) in order to manipulate the worldwide oil supply and therefore the price of oil .
What are the problems with OPEC?
The first problem that OPEC suffers from is that they do not control the majority of oil supply in the world, that is they don’t have the market power . The share of the global oil supply that OPEC controls has fluctuated over time, while it has 81% (1213.4 billion barrels, 2015) of the world’s proven crude oil reserves it only produces about 40% of crude oil today (this number has fluctuated since its creation). Without the control of the market, OPEC has to compete with non-OPEC nations such as Canada, U.S, Norway, Mexico, Brazil and others. This means that OPEC countries have to compete with other global players who are free to operate in the market as they please, whereas OPEC nations have to coordinate with each other.
Which countries are members of OPEC?
The map below shows the sizes of the oil reserves held by the OPEC member nations (Selected are member nations: Algeria, Angola, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela) Press the play button in the lower left hand corner to see how these reserves change with time (watch Venezuela specifically):
Is OPEC a cartel?
Although OPEC has the structure and intent of a cartel, it fails to function properly to achieve its objective of influencing global oil supply.