OPEC Nations
Arpan Shrivastava
Asst. Professor
IBMR, IPS Academy, Indore
What is OPEC
• “Organization of Petroleum Exporting
Courtiers”
• Regulates exporting of oil, oil products, and oil
pricing
• HQ in Vienna, Austria
• Produces 40% of whole world’s oil supply
• Wants high oil prices
• Algeria, Angola, Ecuador, Iran, Iraq, Kuwait,
Libya, Nigeria, Qatar, Saudi Arabia, UAE,
Venezuela
What is OPEC?
• OPEC stands for the Organization of
Petroleum Exporting Countries
• Members include: Saudi Arabia, Iran, Iraq,
Kuwait, United Arab Emirates, Libya, Algeria,
Qatar, Indonesia, Nigeria, and Venezuela
• Founded in 1960
• Their Mission: Control the PRICE of World
Oil by limiting the SUPPLY
What is SUPPLY?
• SUPPLY is simply how much ‘stuff’ is
available...
• ... For OPEC that ‘stuff’ is petroleum or oil.
What is DEMAND?
• DEMAND is simply how much ‘stuff’ is
wanted or needed.
• Oil is very much in demand - because it is so
important for economies to grow...
SUPPLY and DEMAND
• SUPPLY and DEMAND are exact opposites of one
another:
• The more DEMAND the less the SUPPLY XBox 360 was
very popular gift for Christmas (HIGH DEMAND),
because it was so popular sometimes it was hard to find in
stores (LOW SUPPLY)
• The less DEMAND the greater the SUPPLY Sega was not
as popular (LOW DEMAND), so it might have been much
easier to find that in stores (HIGH SUPPLY)
How PRICE is Determined:
• If you graphed a SUPPLY Table and a
DEMAND Table where the two lines meet is
called the PRICE
• The more rare or scarce something is - the less
SUPPLY the greater the DEMAND... the higher
the PRICE!
What is a Monopoly?
• When one person, company or country
produces or controls a substantial amount of a
particular something.
• For example, Microsoft makes the operating
system of more than 90 percent of the world’s
computers!
• Can you list any other monopolies - how do
they control PRICE?
OPEC is a Monopoly!
Percentage of World Petroleum Reserves
• OPEC countries
dominate the Top-10 of
world’s petroleum
SUPPLY (only Russia
and Kazakhstan are not
members).
• Together OPEC
controls almost 75
percent of the World
Petroleum Reserves!
1
Saudi Arabia
22.10
2
Iran
11.14
3
Iraq
9.68
4
Kuwait
8.33
5
United Arab Emirates
8.23
6
Venezuela
6.50
7
Russia
6.08
8
Kazakhstan
3.33
9
Libya
3.29
10
Nigeria
2.97
What about DEMAND?
Percentage of World Petroleum Consumers
• Petroleum
DEMAND is
strongly linked to
GDP.
• The world’s
biggest economies
need huge
amounts of oil to
function!
Oil
GDP
1
United States
24.89
1st
2
China
8.19
2nd
3
Japan
6.41
3rd
4
Germany
3.41
6th
5
Russia
3.28
11th
6
India
3.17
4th
7
South Korea
2.78
15th
8
Canada
2.64
12th
9
France
2.49
8th
10
Italy
2.38
9th
Member Countries
• 1960: Founding Members:
Iran, Iraq, Kuwait, Saudi
Arabia and Venezuela.
• Qatar (1961);
• Indonesia (1962) –
suspended its membership
from January 2009
• Socialist Peoples Libyan
Arab Jamahiriya (1962)
• United Arab Emirates (1967)
• Algeria (1969)
• Nigeria (1971)
• Ecuador (1973) – suspended
its membership from
December 1992-October
2007
• Angola (2007)
• Gabon (1975–1994).
Map of Proven Petroleum Reserves
Map of Petroleum Consumption
Basic Facts
•
OPEC was formed in Baghdad in 1960 to coordinate and unify the policies of
petroleum exporting nations
•
The main objective of OPEC is to ensure the “stabilization of oil prices in international
markets” and securing a steady income to oil producing nations
•
In order to achieve these objectives, the OPEC nations meet at least bi-annually to
decide whether to raise or lower their collective oil production in order to maintain
“stable” prices
•
The main factors in their formulating of petroleum policy are the forecasts for
economic growth rates and petroleum demand and supply
•
The 11 OPEC member countries produce about 40% of the world’s crude oil, and
therefore have a strong influence on the oil market
•
At the end of 2001, OPEC had reserves of nearly 850 billion barrels of crude oil,
representing nearly 80% of the world total of over 1 trillion barrels
Middle East
•
Although OPEC is not an organization of Middle Eastern oil producers, the politics of
the Middle East and in particular the Persian Gulf have played and continue to play a
dominant role in the policies OPEC decides upon
•
There have been three main price spikes in world oil prices, all of which were due to
unrest in the Middle East with OPEC not increasing quotas enough to compensate:
•
In the early 1970’s oil prices spiked as Arab oil producers embargoed oil deliveries to
countries friendly to Israel
•
In 1979, prices soared again as Iranian oil workers went on strike in support of the
Islamic Revolution, and high prices continued in the early 80’s during the Iran/Iraq
War
•
In 1990 when Iraq invaded Kuwait, oil exports from Kuwait were severely diminished
from the burning of their oil fields and the imposing of sanctions on oil exports from
Iraq ( In this instance Saudi Arabia did pick up the slack substantially )
• Opened Sept. 10-14, 1960 in
Baghdad, Iraq
• Started in economic and
political changes
• “Seven Sisters” controlled
Oil Marked before
• Countries joining OPEC
control their own resources
(OPEC Policy)
• After starting company ten
countries joined
OPEC
History
1960s
OPEC History
1970s
• OPEC became well known
• Countries took control of
oil company and oil pricing
• Oil prices went up drastically (1973)
• OPEC Fund for International Development
• Organization gained three members
• Oil prices dropped badly
• Small oil market shares
fell
• Oil revenue lowers badly
• Reference Basket to help
price oil
• New environmental issues
become relevant
OPEC
History 1980s
•
•
•
•
Prices became more stable
Recovery while post-Soviet Union settled
Economy and weather effected prices
Producers, consumers, OPEC, and NonOPEC coordinating affiliations
OPEC
History 1990s
• OPEC’s pricing system made pricing
better (early 2000s)
• Markets increased prices to record
levels
• Prices crashed after
• Made a “comprehensive long-term
strategy”
• Help achieve stable markets,
environment, development.
OPEC History
2000s
USA vs. OPEC
Problems accusing OPEC countries, limit oil
• OPEC make oil supply go up continuously
• Oil pricing issues
• OPEC wanting high prices using to
advantage, USA depends on oil
OPEC and The U.S.
•
•
•
•
•
•
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As I touched upon in my first presentation, the United States consumes
nearly 7 billion barrels of oil annually
The U.S. imports over half of these 7 billion barrels, with half of these
imports coming from OPEC nations
The amount of these imports is only going to increase in the future as the
nearly depleted U.S. reserves begin to run out
Some numbers for you math lovers of course:
~ 1998 U.S. oil imports- $50 Billion
nations
~ 1999 U.S. oil imports- $67 Billion
nations
~ 2000 U.S. oil imports- $119 Billion
nations
~ Approx. $25 Billion to OPEC
~ Approx. $34 Billion to OPEC
~ Approx. $60 Billion to OPEC
Major Sources of U.S. Petroleum Imports
Country
Total Oil Imports
Canada
1.79
Saudi Arabia
1.66
Venezuela
1.54
Mexico
1.42
Nigeria
.86
Iraq
.78
Norway
.33
Angola
.32
U.K.
.31
Total Imports
11.62
US Dependency
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•
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Country’s demand for oil increasing
Persian Gulf biggest oil production (65%)
Happenings in OPEC countries effect oil prices
Most US oil from OPEC countries
US economy relates to OPEC oil prices
Strategic Oil Revenue-oil supply for emergencies
Oil Alternatives
• Tar Sands-sticky substance underground in
sand & rock
• Tar Sands-bad for environment
• Ethanol-oil made by corn
• Ethanol-would hurt our food supply
• Ethanol-97% of land would be corn if fuel
was only ethanol
• Both-industries lose more energy than make
Pollution
•Petroleum/oil products
poisonous
•Petroleum has sulfur &
nitrogen tracings
•Hydrocarbon
•Petroleum/oil is one of the biggest polluters
Problems with the US
• Oil dependency creating a disaster
• Not exactly looking for different fuel
resources
• Oil companies/companies invested in oil
not looking for alternatives-USA stuck in a
rut
• Synthetic oil payments go in taxes-foreign
oil no taxes
• Foreign fuel in favor-not giving other
sources a chance
Religion vs. Oil
• Some OPEC countries are Muslim
• USA worried because of Muslim faith-just
seeing beliefs as a threat
• Some Muslims want to convert all
countries-all faiths need to work togetheroil countries
• Oil products also in concern
Summary
• While OPEC still has considerable influence in determining
the price per barrel of petroleum by restricting output, their
success has greatly diminished since the 1970’s
• Despite the overall increase in worldwide demand for
petroleum, OPEC nations have not received the brunt of this
increased demand. Rather, it has gone to Non-OPEC nations
• As a result, over the past few years both production and
revenues in the OPEC nations have declined significantly
• Successful oil production in the OPEC nations is tied to the
political and economic status of the volatile Middle East, which
serves as a deterrent to potential importers
Conclusion
• OPEC still has considerable influence in determining the price
per barrel of petroleum by setting quotas, but their best days
are behind them
• Non-OPEC nations such as Canada and Mexico have
stripped the cartel of its power to single-handedly manipulate
the petroleum market
• The U.S. has benefited from the increased production of
petroleum by Non-OPEC nations and thus reduced their
annual imports from the OPEC countries in recent years
• The United States needs to address its unacceptable energy
policy by stressing efficiency and reduced demand for fossil
fuels
Thank You