BUSINESS ECONOMICS

Presented by:

AKSHIT ARORA(201)

YASH BHAYANI(202)

AKHIL SAWANT(209)

ANKIT MEHTA(217)

Overview

Introduction to OPEC Rise of OPEC Functioning of OPEC OPEC…Controller of oil market??? CRUDE OIL PRICES How does OPEC oil production affect oil prices? OPEC a Cartel or a Political body? The First Oil Shock The Second Oil Shock The Persian Gulf War 2008 Crisis Non-OPEC Production

Introduction To OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization.

OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its member Countries.

Oil is the vital key to development for the member countries.

Country Joined OPEC Location

Algeria 1969 Africa

Angola 2007 Africa

Ecuador ** rejoined 2007 South America

Iran * 1960 Middle East

Iraq * 1960 Middle East

Kuwait * 1960 Middle East

SP Libyan AJ 1962 Africa

Nigeria 1971 Africa

Qatar 1961 Middle East

Saudi Arabia * 1960 Middle East

United Arab Emirates 1967 Middle East

Venezuela* 1960 South America

* founder Members** Ecuador joined OPEC in 1973, suspended its membership from Dec. 1992-Oct. 2007

Principal objectives of OPEC

Co-ordinate and unify the petroleum policies of the Member Countries.

Seek ways and means of ensuring the stabilization of prices in international oil market.

Provide regular supply of petroleum to consuming nations

Rise of OPEC

OPEC came into existence on 14h September 1960.

OPEC was founded by 5 major oil producing countries namely; Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

It was registered in the United Nations on 6th November 1962.

OPEC can be considered as “Cartel” organization.

Oil, with its limited number of suppliers make it the ideal product for cartelization.

Functioning of OPEC

Representatives of OPEC Member Countries meet every 6 months to coordinate and unify their petroleum policies.

The Member Countries consider the current situation and forecasts the market fundamentals, such as the petroleum demand and supply scenarios.

Depending upon their forecast they decide variously to raise or lower their collective oil production in order to maintain stable prices.

Common Doubts about OPEC

OPEC…Controller of oil market…???

Does OPEC decide crude oil prices…???

How does OPEC oil production affect oil prices…???

OPEC is a Cartel or a Political body…???

First oil shock

US pulled out of gold exchange standard.

Oil producing states began demanding for more concessions.

Muammar al-Qaddafi’s seizing of power in military coup in Libya.

The Egypt Israeli war of 1973.

Saudi Arabia refused to increase production in order to halt rising prices.

Oil embargo against the United States.

Oil prices jump from about $3.00 a barrel to $11.65 a barrel.

The Second Oil Shock

Iranian Revolution.

Embargo on Iranian oil.

Outbreak of the war between Iran and Iraq in 1980.

Rise of non OPEC countries.

Oil producing states placed a significant portion of their revenue into commercial banks.

Increase in interest rates by the developed nations.

The Persian Gulf War

Iraq’s invasion in its fellow OPEC member Kuwait in 1990.

Removal of both the countries from OPEC.

Saudi Arabia expanded its production to meet the global demand.

Iraq's refusal to comply with United Nations resolutions resulted in the continuation of an oil embargo.

The prices reached to lowest mark of 12$ in 1998.

In 2005 the prices shoot up to 60$.

2008 Crisis

In mid 2006, crude oil was traded for over $79 per barrel.

North Korea's successful nuclear test on October 9, 2006.

October 19, 2007, U.S. light crude rose to $90.02 per barrel.

On January 2, 2008, U.S. light crude surpassed $100 per barrel.

United States of economic "mismanagement“.

On April 18, 2008 the price of oil broke $117 per barrel.

Then due to inflation oil reached all time high of $143 on june 2008.

OPEC’s contribution since 1960

Non-OPEC Countries

Seven of the world's fifteen largest oil producers are outside of OPEC. They are as follows:

1. Russia

2. United States

3. China

4. Mexico

5. Canada

6. Norway

7. Brazil

8. Britain

Non-OPEC nations produce nearly 60 percent of total production for the year.

United States, Mexico and Norway have experienced a decline in production

Whereas there has been significant increases in production from Brazil, Canada, Russia and a few other former Soviet states.

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