Final opec

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Final opec

  1. 1. OPEC THE ECONOMICS OF CARTEL
  2. 2. Introduction <ul><li>OPEC--Organization of the Petroleum exporter countries. </li></ul><ul><li>Formed on September 14, 1960 in Baghdad, Iraq . </li></ul><ul><li>Consisting of 12 oil producing and exporting countries. </li></ul><ul><li>The members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE & Venezuela. </li></ul><ul><li>Founded to unify and co-ordinate members' petroleum policies. </li></ul><ul><li>Headquarter in Vienna, Austria. </li></ul>
  3. 3. Before OPEC <ul><li>Controlled by Seven huge oil companies- “SEVEN SISTER’s”. </li></ul><ul><li>For much of the 20th century United States and its government regulated oil prices. </li></ul><ul><li>Saudi Arabia and Iran also started exporting crude oil to these companies. </li></ul><ul><li>Arab countries increased the price of oil for western countries as buy from Arab and sell them back. </li></ul>
  4. 4. Reason for Formation of Cartel <ul><li>To co-ordinate and unify petroleum policies among Member Countries. </li></ul><ul><li>It's a cartel. </li></ul><ul><li>To achieve economic objectives. </li></ul><ul><li>To unify petroleum policies among the member countries. </li></ul>
  5. 5. How OPEC, After Forming Cartel Affected Oil Market? <ul><li>What were the situation that led OPEC to form cartel? </li></ul><ul><li>Comparison when OPEC were independent and when they formed cartel. </li></ul><ul><li>Model of Cartel Behavior. </li></ul><ul><li>Production allocation under Cartel. </li></ul><ul><li>Member countries did not abide, oil price dropped from $28 to $12 between. </li></ul>
  6. 6. Difference in Price and output under Cartel
  7. 7. Price, Output & Profit Determination in Cartel
  8. 8. Changes in Oil Market <ul><li>1971- SHIFT of PRICE CONTROL POWER from MNC’S to OPEC </li></ul><ul><li>-Six other nations had joined OPEC </li></ul><ul><li>-Global demand for oil was met by the OPEC </li></ul><ul><li>1973- War between Israel and Syria & Egypt. </li></ul><ul><li>1980 -US became more energy efficient   </li></ul><ul><li>1981 -Crude oil prices doubled from $14 in 1978 to 1985 - From 1982 to 1985 OPEC attempted to set production quotas low enough to stabilize prices. </li></ul>
  9. 9. OPEC AFTER 1985 <ul><li>1986 crisis : Oil prices began a six-year decline with a 46 percent price drop in 1986. </li></ul><ul><li>Price Fluctuations : The oil prices dropped from $28 to $12 between 1985 and 1986. </li></ul><ul><li>Member Shares Of OPEC : In Jan 1990 Saudi Arabia and Kuwait had 24 and 9 percent of OPEC's total production. Iraq and Iran had 13 percent and 12 percent respectively. </li></ul><ul><li>OPEC Price Band Mechanism : During 2000 ,OPEC set a price band mechanism in the range of $22 and $28 per barrel and suspended this mechanism in Jan 2005. </li></ul>
  10. 10. IRAQ’s Invasion of KUWAIT <ul><li>Kuwait was a close ally of Iraq during Iraq – Iran war. </li></ul><ul><li>At the end of the war Iraq owed $14 billion to Kuwait </li></ul><ul><li>which it denied to waive-off. </li></ul><ul><li>Rumaila Oil field exploration. Iraq accused Kuwait of </li></ul><ul><li>stealing oil worth $2.4 billion, which it denied. </li></ul><ul><li>600 Oil Wells set on fire. </li></ul>
  11. 11. Cartelization and its Effect <ul><li>Change in oil price was less predictable. </li></ul><ul><li>Maintaining and finding right price for oil. </li></ul><ul><li>Allocate sales among OPEC countries. </li></ul><ul><li>Excess production lead to excess cost. </li></ul>
  12. 12. ARE OPEC BEHAVING LIKE A CARTEL? <ul><li>BRENT CRUDE ( OPEC ) $103.97 </li></ul><ul><li>WTI CRUDE (TEXAS CRUDE) $80.08 </li></ul>
  13. 13. Current Situation Of OPEC <ul><li>Oil below $79 as fears grow over global economy. </li></ul><ul><li>IEA has assured Opec no more oil stock shocks. </li></ul><ul><li>For petrol, Indians shell out the most in the world. </li></ul><ul><li>Global stocks, euro rises as Greece crisis simmers </li></ul>
  14. 14. Future of OPEC <ul><li>Recent meeting resulted into no agreement. </li></ul><ul><li>The split went along pro-West versus anti-West lines. </li></ul><ul><li>OPEC has lost a lot of its ability to set prices. </li></ul><ul><li>Can OPEC patch up its differences and become a force again in the world economy? </li></ul>
  15. 15. Thank you <ul><li>Presented By : </li></ul><ul><li>Abhishek Singh Raj Goel </li></ul><ul><li>Dimple Jain Sachin Naik </li></ul><ul><li>Harshit Rastogi Savan Patel </li></ul><ul><li>Nikhil Mahajan Shounak Sarkar </li></ul><ul><li>Pranay Sugandhi Shweta Singh </li></ul><ul><li>Puja Bhadani Varun Goel </li></ul>

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