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.
THANK YOU