Introduction

Origin & nature
of OPEC (Organization of the Petroleum Exporting
Countries)

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OPEC was
founded in 1960 to coordinate the petroleum policies of its members, and to
provide member states with technical and economic aid. OPEC is a cartel that
aims to manage the supply of oil in an effort to set the price of oil on the
world market, in order to avoid fluctuations that might affect the economies of
both 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; giving
OPEC a major influence on global oil prices that were previously determined by
American dominated multinational oil companies. It is notable that some of the
world’s largest oil producer’s including Russia, china and the United States
are not members of OPEC and pursue their own objectives.

 

OPEC’s main objectives


Its object is that there should be
stable oil market with reasonable prices and steady suppliers to consumers.


OPEC was made to make sure that the
price of the oil in the world market will be properly controlled.


Their main goal is to prevent harmful
increase in price of oil in global market and make sure that nations that
produce oil have a fair profit.

Issues
Motivated for choosing the study: (Oil — Life Blood of
World Economy)
the reason why I have chosen this topic is
that oil is very important. OIL – One of the life bloods of our World economy
is oil. The impact of oil in today’s economy has been witness by consumers many
times. We have seen how human spending and travel got affected as the price of
oil fluctuates. In contrast almost all energies are generated using oil, to
mention few; Cars, Trucks, railways, Plane, use oil in order to run their
engine. Therefore if oil supply disturbed for one day we can imagine how the global
economy can be affected greatly.OPEC and India

India is the 4th largest importer of oil
and imports 85% of total oil and 95% of gas from OPEC nations .Abnish kumar said
that decision taken by OPEC member countries are likely to be taken as wake up
call for country like India because Indian economy greatly benefited from the
cheaper oil prices.

Lower oil prices kept the economy on the shining
path and helped to keep inflation under control. Following OPEC decision, there
is likely to be a positive impact on the India’s fiscal scene and inflation
dynamics. 

Introduction

Motive
for  choosing this topic

Competitive dynamics of OPEC

OPEC Policies ,
basket

OPEC challenges,  importance , OPEC and  India

Literature review

Opec
and the world

Current situation
( form 2010 to now)

Lessons learned

Recommendations

Conclusions

References

Current
situation (time period 2010 to now)

2010s oil
glut

The 2010 oil glut is a surplus of crude oil that stared in
2014-2015 and increased in 2016 due to many reasons. One of them was the
oversupply of oil as the US and the Canadian shale oil production increased and
the second reason was that there was a lot of competition among the oil
producers.  Also the economy of china was
decelerating, falling demand for commodities in the market.

2011

Prices were stable between 2011 and
mid-2014, before a combination of speculation and oversupply caused them to
fall in 2014. Trade patterns continued to shift, with demand growing further in
Asian countries and generally shrinking in the OECD.

2012

The world price of oil was above US$125 per
barrel in 2012, and remained relatively strong above $100 until September 2014,
after which it entered a sharp downward, falling below $30 by January 2016.
Opec production was poised to rise with increasing international sanctions on
Iran.

2014–2017 oil
glut

During
2014-2015, OPEC member nations continuously increased their production ceiling,
and also china experienced a slowdown in its economic growth. At the same time ,
US oil production doubled from 2008 levels and approached the world leading swing
producers- volumes of Saudi Arabia and Russia, due to long term improvement and
spread of shale fracking technology. These developments led in turn to a decrease
in US oil imports and a collapse in oil prices for OPEC that continued into early
2016.

On 27
November 2014 in Vienna, Saudi oil minister Ali Alnami blocked appeals form poorer
OPEC members for production cuts to support prices. He argued that the  oil market shoud be left to rebalance itself competitively
at lower price levels, strategically rebuilding OPEC’s long term market share .

 

2016

Because of all the market
pressures, OPEC decided to remove its ineffective production ceiling in june 2016.By
20 January 2016, the OPEC Reference Basket was down to US$22.48/bbl – less than
one-fourth of its high from June 2014 ($110.48), less than one-sixth of its
record from July 2008 ($140.73), and back below the April 2003 starting point
($23.27) of its historic run-up

OPEC obtained a modest percentage of market
share, cancelled many of its competing drilling projects, and set the prices at
levels which were suitable for both producers and consumers.

2017

On November 30, 2017, OPEC agreed to continue
withholding 2 per cent of global oil supply. That continues the policy it
formed on November 30, 2016, when it agreed to cut production by 1.2
million barrels. Starting January 2017, it will produce 32.5 million barrels
per day. That’s still above its average 2015 level of 32.32 mbpd. The
agreement exempted Nigeria and Libya. It gave Iraq its first quotas since the
1990s. Russia, not an OPEC member, voluntarily agreed to cut
production. 

 

Lessons learned

v  The global
economy represented the main risks to the oil market in the past decades as the
uncertainties and risks surrounding the international financial system weighted
on economies.

v  While the OPEC
still has considerable influence on the oil market, its  success has greatly diminished since 1970.

v  In spite of
increase in demand for oil in the market, the demand does not go to the OPEC
instead it has gone to non-OPEC nations. Therefore both the production and
revenue of OPEC has diminished dramatically.

v  Successful oil
production of OPEC is depending on the political and economic status of the
Middle East which is a deterrent to the importers.

v  OPEC still has
great influence on the price of oils in the market, but their best days are
behind them.

v  The United
States has benefited from the increase in the production of oil in non-opec
nations as their import form opec has decreased.

v  OPEC has been trying
to increase its cooperation with consumer countries and non-opec producers.