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IntroductionOrigin & natureof OPEC (Organization of the Petroleum ExportingCountries)OPEC wasfounded in 1960 to coordinate the petroleum policies of its members, and toprovide member states with technical and economic aid. OPEC is a cartel thataims to manage the supply of oil in an effort to set the price of oil on theworld market, in order to avoid fluctuations that might affect the economies ofboth producing and purchasing countries.As of 2016, the 14 countries accounted for an estimated 44 %of global oil production and 73% of the world’s proven oil reserves; givingOPEC a major influence on global oil prices that were previously determined byAmerican dominated multinational oil companies. It is notable that some of theworld’s largest oil producer’s including Russia, china and the United Statesare not members of OPEC and pursue their own objectives. OPEC’s main objectivesv Its object is that there should bestable oil market with reasonable prices and steady suppliers to consumers.v OPEC was made to make sure that theprice of the oil in the world market will be properly controlled.
v Their main goal is to prevent harmfulincrease in price of oil in global market and make sure that nations thatproduce oil have a fair profit.OPEC MembershipAccording to itsstatutes, OPEC membership is open to any country that is a substantial exporterof oil and that shares the ideals of the organization. Along with the fivefounding members, OPEC has 9 additional member countries, As of May 2017, OPEC’s members are Algeria, Angola, Ecuador, EquatorialGuinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), UnitedArab Emirates,and Venezuela, while Indonesia is a former member. Two-thirds of OPEC’s oil productionand reserves are in its six Middle Eastern countries that surround the oil-rich Persian Gulf.Issues Motivated for choosing the study: (Oil — Life Blood ofWorld Economy)the reason why I have chosen this topic isthat oil is very important. OIL – One of the life bloods of our World economyis oil.
The impact of oil in today’s economy has been witness by consumers manytimes. We have seen how human spending and travel got affected as the price ofoil fluctuates. In contrast almost all energies are generated using oil, tomention few; Cars, Trucks, railways, Plane, use oil in order to run theirengine. Therefore if oil supply disturbed for one day we can imagine how the globaleconomy can be affected greatly.
Competitive Dynamics of OPECv Before 1970No Major Role played by OPECv During 1970Power of Price setting shifted from MNC Oil Companies to OPECv By 1973OPEC countries changed the Pricing Systemv 1975-1985Oil Production Increase from 48% to 71%v Mid 1980Survival became uncertain. Market shares fell from 52% 30% in 1985OPEC PoliciesOPEC’s influence onthe market has been widely criticized. Because its member countries hold thevast majority of crude oilreserves (about 80%) and nearly half of natural gas reservesin the world, the organization has considerable power in these markets. As acartel, OPEC members have a strong incentive to keep oil prices as high aspossible, while maintaining their shares of the global market.
OPEC BasketAweighted average of oil prices collected from various oil producing countries.This average is determined according to the production and exports of eachcountry and is used as a reference point by OPEC to monitor worldwide oilmarket conditions.Does OPEC control the Oil Prices?Yes-, OPEC’s crude oil exports represent about 60 per cent of the crudeoil traded internationally.The price of crude oil is set bymovements on three major international petroleum exchange.v The New York Mercantile Exchangev The International Petroleum Exchange ¡n Londonv The SingaporeInternational Monetary Exchange.OPEC is trying to price the OIL inEuros rather than in Dollars- As the imports from Europe for OPEC countries isincreasing and the US dollar is becoming unstable ¡in the market.No-OPEC Member countries produce about 42 per cent of the world’s crudeoil and 18 per cent of its natural gaz.
OPEC challenges1) Uncertainty in Global Demand.2) Structural shift in demand from developed world to developing world.3) Non-OPEC oil-producing nations (Russia, Norway, Canada, Mexico etc.)often increase production when OPEC cuts it.4) Russia overtook Saudi Arabia as the world’s biggest crude supplier in 2009.
5) OPEC’s share of production has gone down.6) Existence of factions within OPEC.7) Future technological developments in areas of renewable energy sources OPEC ImportanceOPEC has beengaining steady power and influencing the global oil market since the 1970s whenOPEC had ~50% of market share in global crude oil production. High market sharehas also given OPEC the bargaining power to price oil above what prices wouldbe in a more competitive market. This means OPEC has the ability to sway crudeoil prices by increasing or decreasing production. OPEC and India India is the 4th largest importer of oiland imports 85% of total oil and 95% of gas from OPEC nations .
Abnish kumar saidthat decision taken by OPEC member countries are likely to be taken as wake upcall for country like India because Indian economy greatly benefited from thecheaper oil prices.Lower oil prices kept the economy on the shiningpath and helped to keep inflation under control. Following OPEC decision, thereis likely to be a positive impact on the India’s fiscal scene and inflationdynamics.