OPEC was established in 1960 with the principal aim of coordinating petroleum policies and protecting the interests of member countries. It currently accounts for 40% of global crude oil production and 55% of internationally traded oil. Throughout its history, OPEC has shifted from having no major role in price setting before 1970 to gaining control of prices in the 1970s. It has faced challenges maintaining quotas and market share while balancing supply and demand fluctuations to keep oil prices stable.
QSM Chap 10 Service Culture in Tourism and Hospitality Industry.pptx
Opec the economics of a cartel
1.
2. 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 world's crude oil production
Exports represent 55% of the crude oil traded
internationally
3. 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
4. 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
5. 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
6. 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
7. 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
8. 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