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Opec the economics of a cartel
Opec the economics of a cartel
Opec the economics of a cartel
Opec the economics of a cartel
Opec the economics of a cartel
Opec the economics of a cartel
Opec the economics of a cartel
Opec the economics of a cartel
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Opec the economics of a cartel

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  • 1.  Set up in 1960 Principal Aim- coordination & unification of petroleum policies of member countries & the determination of the best means for safeguarding their interests, individually & collectively’ 40% of the worlds crude oil production Exports represent 55% of the crude oil traded internationally
  • 2.  Before 1970  No major role played by OPEC countries During 1970  Power of price setting shifted from MNC oil companies to OPEC  By 1973 OPEC countries changed the pricing system 1975-1985  Oil production increased from 48% to 71% Mid-1980  Survival became Uncertain  Market share fell from 52% to 30% in 1985
  • 3.  Quota set by OPEC  Production ceiling set up was violated  1985-Oil prices dropped from $28 to $12  1990s- $30 per barrel  1993- $15 per barrel
  • 4.  Pricing data collected March 2000 –Set a Price Band mechanism in the range of $22-$28 per barrel Production adjustments on basket price Jan 2005 – suspended price band mechanism  Market was tight in its price band  Unable to defend by cutting its production
  • 5.  Price being affected due to speculation Fluctuation due to changes in quota decisions 1980- OPEC made a mistake by increasing oil prices to $40 / barrel  Reduction in demand – reduction in prices Problem with cartel  Maintaining the right price  Allocate sales among OPEC countries Growth expectation in 2008-2009
  • 6.  Lifting costs incurred in extraction 1999-less than $1.50 a barrel Persian countries have incurred lowest replacement cost and U.S incurred highest costs Cost for setup maybe around $19-$25 pb still the oil price rises up to $100
  • 7.  OPEC produced 28-29mbpd in 1971 Still producing the same amount Prices rocketing due to surging demand In 2008 oil ministers declined to increase production. Extraction costs $1.50 pb. PB price $100 OPEC maintained that surging prices were due to Hedging and mere Speculation

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