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Port City International University: Topic:-Is Opec To Be Considered A Cartel?

OPEC functions similarly to a cartel by coordinating production quotas among its 13 member countries in order to influence the global price of oil. As some members have an incentive to exceed quotas, OPEC's ability to control prices is limited. However, by restricting output of its low-cost oil reserves, OPEC can still impact the supply curve and where it intersects demand. While OPEC once dominated the oil market, increased production from non-OPEC nations has reduced its power over prices. The US has benefited from diversifying its oil imports away from OPEC.

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37 views9 pages

Port City International University: Topic:-Is Opec To Be Considered A Cartel?

OPEC functions similarly to a cartel by coordinating production quotas among its 13 member countries in order to influence the global price of oil. As some members have an incentive to exceed quotas, OPEC's ability to control prices is limited. However, by restricting output of its low-cost oil reserves, OPEC can still impact the supply curve and where it intersects demand. While OPEC once dominated the oil market, increased production from non-OPEC nations has reduced its power over prices. The US has benefited from diversifying its oil imports away from OPEC.

Uploaded by

akash creation
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© © All Rights Reserved
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PORT CITY INTERNATIONAL UNIVERSITY

TOPIC :- IS OPEC TO BE CONSIDERED A


CARTEL?
Submitted By:
Submitted To: MD. Monir Uddin (BBA01005822)
MD. Akbar Kalam Akash Datta (BBA01005800)
Lecturer, Department of Business MD. Sabbir Uddin (BBA01005799)
Administration. MD Al Noman (BBA01005798)
MD Tousif Reza (BBA01005837)
Shagata Banik (BBA01005797)
INTRODUCTION OF CARTEL

 What is cartel…?
 A formal organization of producers and
manufacturers that agree to fix prices, marketing,
and production.
  Usually occur in an oligopolistic industry.
 Products being traded are usually commodities
 Outcomes of Cartel
  Price fixing
  Market shares
  Allocation of territories
INTRODUCTION OF
OPEC

 The Organization of the Petroleum Exporting Countries (OPEC)


is a permanent, intergovernmental Organization, was established
in Baghdad.

 OPEC comprised 13 members: Algeria, Angola, Ecuador,


Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia,
United Arab Emirates, Venezuela.

 OPEC's objective is to co-ordinate and unify petroleum policies


among Member Countries, in order to secure fair and stable
prices for petroleum producers.
OPEC AND THE ENVIRONMENT

 Investing billions of dollars over the past decades


in flared-gas recovery projects.

 Recognizes the realities of global climate change and


supports comprehensive, fair and realistic efforts to
reduce the environmental impacts of global energy
use.

 OPEC and its Member Countries have been active


participants in the longstanding United Nations-
sponsored negotiations on climate change.
PROBLEM STATEMENT OF OPEC AS A
CARTEL
 OPEC problem is that the organization itself doesn’t
control enough of the world’s supply to really control
the oil price. And while it’s got some help from some
other producers that’s still not quite enough. And that’s
really OPEC’s problem writ large, the more successful
they are at rising the price then the more they’re
going to call into that competition which will undermine
that price.
 And the problem with such a cartel is that every single
member has an incentive to cheat all the other
members. The production restraints push up the price.
THE OPEC AS CARTEL
 The oil‐producing firms form a
cartel like OPEC to determine
their output and price, they will
jointly face a downward‐sloping
market demand curve, just like a
monopolist. In fact, the cartel's
profit‐maximizing decision is the
same as that of a monopolist, as
Figure reveals.
THE OPEC AS CARTEL
CONTD…
OPEC is able to act somewhat like a
monopolist, even though the oil industry is not a
monopoly. OPEC countries produce about 30%
of the world's oil. However, they produce a lot
of low cost oil, so they are able to effectively
control the supply curve and where it intersects
the demand curve by restricting their
output. This is shown in the diagram below.
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

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