1. Organization of Petroleum Exporting Countries
Submitted by:-
Gunjan Jadon(116)
Neha Mishra(131)
Satyadev(146)

2. About OPEC
• It is a permanent intergovernmental organization, currently
consisting of 12 oil producing and exporting countries,
spread across three continents America, Asia and Africa
• Oil is the main marketable commodity and foreign
exchange earner. Thus, for these countries, oil is the vital
key to development – economic, social and political. Their
oil revenues are used not only to expand their economic
and industrial base, but also to provide their people with
jobs, education, health care and a decent standard of living
• OPEC was formed at a meeting held on September 14,
1960 in Baghdad, Iraq, by five Founder Members: Iran, Iraq,
Kuwait, Saudi Arabia and Venezuela. OPEC was registered
with the United Nations Secretariat on November 6, 1962

3. Member Countries
Country Joined OPEC Location
Algeria 1969 Africa
Angola 2007 Africa
Ecuador ** rejoined 2007 South America
IR Iran * 1960 Middle East
Iraq * 1960 Middle East
Kuwait * 1960 Middle East
Libya 1962 Africa
Nigeria 1971 Africa
Qatar 1961 Middle East
Saudi Arabia * 1960 Middle East
United Arab Emirates 1967 Middle East
Venezuela* 1960 South America

4. • Countries in blue are the members countries
• Ecuador and Gabon were early members of OPEC, but Ecuador
withdrew on December 31, 1992 because it was unwilling or unable
to pay a $2 million membership fee and felt that it needed to
produce more oil than it was allowed to under the OPEC quota,
although it rejoined in October 2007

5. OPEC’S Objectives
The organization’s principal objectives are:
• To co-ordinate and unify the petroleum policies of the
Member Countries and to determine the best means for
safeguarding their individual and collective interests
• To seek ways and means of ensuring the stabilization
of prices in international oil markets, with a view to
eliminating harmful and unnecessary fluctuations
•To provide an efficient economic and regular supply of
petroleum to consuming nations and a fair return on
capital to those investing in the petroleum industry.

6. OPEC Statute & Membership
“Any country with a substantial net export of
crude petroleum, which has fundamentally
similar interests to those of Member Countries,
may become a Full Member of the
Organization, if accepted by a majority of three-
fourths of Full Members, including the
concurring votes of all Founder Members”

7. The Statute further distinguishes between three categories
of membership:
• Founder Members of the Organization are those countries
which were represented at OPEC's first Conference, held in
Baghdad, Iraq, in September 1960, and which signed the
original agreement establishing OPEC.
• Full Members are the Founder Members, plus those
countries whose applications for Membership have been
accepted by the Conference.
• Associate Members are the countries which do not qualify
for full membership, but which are nevertheless admitted
under such special conditions as may be prescribed by the
Conference.

8. • The OPEC Conference: The Conference generally meets twice a
year, in March and September, and in extraordinary sessions
whenever required. It operates on the principle of unanimity and
one Member, one vote. It is responsible for the formulation of the
general policy of the Organization, setting oil price and quotas for
each country and the determination of the appropriate ways and
means of its implementation.
• The Heads of Delegation : The Heads of Delegation to OPEC are
the official representatives of each Member Country to the OPEC
Conference. They are normally the Ministers of Oil, Mines and
Energy of Member Countries.
• Headquarters : Vienna, Austria
• Official language : English
• President : Rostam Ghasemi
• Secretary general : Abdallah el-Badri
• Currency : USD per barrel

9. Why OPEC?
• Stable oil market, with reasonable prices and steady supplies to
consumers : OPEC was made to make sure that the price of the oil in the
world market will be properly controlled. There 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.
• Seven Sisters : The international oil market was dominated by the
“Seven Sisters” multinational companies and was largely separate
from that of the former Soviet Union (FSU) and other centrally
planned economies (CPEs). OPEC developed its collective vision, set
up its objectives and established its Secretariat, first in Geneva and
then, in 1965, in Vienna. It adopted a ‘Declaratory Statement of
Petroleum Policy in Member Countries’ in 1968, which emphasised
the inalienable right of all countries to exercise permanent
sovereignty over their natural resources in the interest of their
national development. Membership grew to ten by 1969.

10. • Mandatory Oil Import Quota Program (MOIP) : In
1959, the U.S. government established the
Mandatory Oil Import Quota program (MOIP), which
restricted the amount of imported crude oil and
refined products allowed into the United States and
gave preferential treatment to oil imports from
Canada, Mexico, and, somewhat later, Venezuela.
This partial exclusion of Persian Gulf oil from the U.S.
market depressed prices for Middle Eastern oil;
therefore the Persian Gulf nations formed OPEC in
order to obtain higher prices for crude oil

11. • OPEC-
• Cartel Group /Producer’s Alliance- Member
countries of the group decide on the quotas of
production and then setting up of prices
depending on the market situation. Countries
like Saudi Arabia are swing producers as theie
production capability are huge and can effect
the market maximum.

12. Cartel Oligopoly
Sources of power Explicit agreement between the Each firm can significantly
dominant players in the influence the market by setting
industry. price or production quantity.
Prices Unusually high. Prices are fixed Moderate/fair pricing due to
by cartel members. competition in market
Examples OPEC, lysine cartel, Federal Health insurers, wireless
Reser carriers, beer (Anheuser-Busch
and MillerCoors), media (TV
broadcasting, book publishing,
movies)
Characteristics Prices and production quantities firms compete with each other
are fixed. Product is based on product differentiation,
undifferentiated. price, customer service etc.
Meaning agreement between firms in an An economic market condition
industry to fix price and where numerous sellers have
production quantity their presence in one single
market.
Barriers to entry difficult to enter the industry difficult to enter the industry
because of economies of scale. because of economies of scale.

13. Quotas circa 2005
OPEC Quotas and Production in thousands of barrels per day [36]
Country Quota (7/1/05) Production (1/07) Capacity
Saudi Arabia 10,099 9,800 12,500
Algeria
894 1,360 1,430
Angola 1,900 1,700 1,700
Ecuador 520 500 500
Iran 4,110 3,700 3,750
Iraq
1,481
Kuwait 2,247 2,500 2,600
Libya 1,500 1,650 1,700
Nigeria 2,306 2,250 2,250
Qatar
726 810 850
United Arab Emirates 2,444 2,500 2,600
Venezuela 3,225 2,340 2,450
Total 29,971 29,591 30,330

14. OPEC Function
• Cartel enforcement problem: overproduction and price
cheating by members.
• The methods available to engage in such cheating
i. Extending credit longer then the standard 30 day period
ii. Selling high grade oil at the price of low grade oil. Crediting for the transportation
cost.
• Rivalry between two groups within OPEC
I. Hawks-Countries having lower production ask for higher prices to get
maximum revenue.(Iran and Iraq)
II. Doves- Countries having Higher output can set lower prices to achieve
economies of scale and make sure that the demand of oil is maintained
in the market and people do not switch to substitutes(Saudi Arabia,
Kuwait, United Arab Emirates)

15. Does OPEC control the Oil Prices?
 Yes-, OPEC's crude oil exports represent about 60 per cent of the
crude oil traded internationally
 No-OPEC Member Countries produce about 42 per cent of the
world's crude oil and 18 per cent of its natural gas
The price of crude oil is set by movements on the three major
international petroleum exchanges
i. The New York Mercantile Exchange
ii. The International Petroleum Exchange in London
iii. The Singapore International Monetary Exchange .
OPEC is trying to price the OIL in Euros rather then in Dollars- As the
imports from Europe for OPEC countries is increasing and the US
dollar is becoming unstable in the market .

17. Non- OPEC countries
• Seven of the world's fifteen largest oil producers are
outside of OPEC and one of the major producer is Russia.
OECD is also part of the Non- OPEC Countries
• Russia
• The former Soviet Union, i.e., the CIS countries form one
of the largest groups of oil and gas producing countries
outside OPEC. The countries produce about 10 per cent
of the world's oil and about 30 per cent of the gas. Some
of the world's biggest oil and gas fields are situated in
Russia, especially in Siberia.
• While OPEC countries shut their wells and idled their
pipelines, new tax incentives encouraged companies in
Russia to, in effect, drill, baby, drill. A devaluation of the
ruble helped exporters.

18. Russia Joins WTO impact
• Ends the anomaly of, a leading oil and natural
gas exporter as well as a permanent member
of the United Nations Security Council,
outside the world trade system.
• Lower its tariffs like(7.1 per cent for oils
(current applied tariff 9.0 per cent))
• Controlled production of OIL because of some
restrictions of WTO.
• Price stability of Oil prices is expected.

19. Why Low prices?
• Imbalance of supply and demand.
• Non OPEC countries
Why High Prices?
• Shortage of Oil supplies
• Taxation.
• Sentiments
• Other Factors

20. • PERHAPS 60% OF OIL PRICES ARE SPECULATION!
• In June 2006, the senate investigation estimated
that of oil traded in futures markets at some$60 a
barrel, about $25 of that was due to pure financial
speculation.
• Analysts estimated in August2005 that US
oil inventory levels suggested WTI crude prices
should be around $25 a barrel, and not $60.
• That would mean today that at least $50 to $60
or more of today's$115 a barrel price is due to pure
hedge fund and financial institution speculation.

21. Oil Crisis
1973 Oil Embargo
• Members of OAPEC(Arab members of OPEC plus
Egypt, Syria, Tunisia) proclaimed an OIL embargo.
• Prices Quadrupled from $3.50 to $12 in 1974.
• In response to US decision to resupply Israeli military
during YOM KIPPUR war.
• YOM KIPPUR war-Syria and Egypt launched a
surprise attack on Israel in 1973.
• Promise of negotiated settlement between Israel
and Syria resulted in removal of embargo.
•

22. Oil crisis (Contd.)
1980 Oil Gluts
• Surplus of Crude Oil caused by falling demand
following the 1970s energy crisis.
• Oil price from $35(1980) fall to below $10 (1986).
• Slowed economic activity in Industrial activities,
reduced demand and overproduction.

23. Oil crisis (Contd.)
1990 Gulf war
• War against Iraq in response to Iraq's invasion and
annexation of Kuwait.
• Iraq dumped 400 million US gallons of crude oil into
the Persian Gulf.
• Apparent strategic goal was to foil a potential
landing by US Marines.
• Kuwaiti oil fires were caused by Iraqi military forces
setting fire to 700 oil wells.

24. OPEC & INDIA
• In 2008 OPEC rejected India’s call for a price
band.
• OPEC doesn’t have uniform pricing policy.
• India having high current account deficit as it imports
70% of oil.
• India-Iran payment issue.

25. OPEC & WORLD
• Crude Reserve’s
Country Crude oil Reserves(billion barrels)2010
Venezuela 296.58
Saudi Arabia 264.54
Iran 151.70
Iraq 143.10
Kuwait 101.50
Total 1193.72
• 81.3 percent(1193.72) out of Total (1467.35)Crude
reserve’s, are in OPEC Member Countries.
Source: OPEC Annual Statistical Bulletin 2010/2011 Edition

26. Current scenario
• Total World Output of Crude oil in 2010 was 69.7
million barrels per day
• OPEC ‘s output was 29.2 million barrels per day
which is 41.8% of World output.
• OPEC crude oil reserves are sufficient to last more
than 112 years.

27. Impact of OPEC
• On Industries:
Shortage of Oil supplies-->Price of Oil will rise.
Higher transportation Cost.
Slow economic growth.
• Economics
• Sustainability
• “World lives on OIL”

28. Importance of Countries(Member &
Non Member)
• Historically they took advantage of the voluntary
constraint of OPEC.
• Russia, Mexico, Oman, Norway are the major non
member countries
• Combined effort required for controlling the prices

29. OPEC Challenges
• Uncertainty in Global Demand
Structural shift in demand from developed
world to developing world.
• Non-OPEC oil-producing nations (Russia ,
Norway, Canada, Mexico etc.)often increase
production when OPEC cuts it.
• Russia overtook Saudi Arabia as the world’s
biggest crude supplier in 2009.
• OPEC’s share of production has gone down
from around 51% in the mid-1970s to just over
40% now.

30. Challenge’s Contd.
• Problem of Member Cohesion within OPEC nations:-
Maintaining quota discipline within the cartel.
• Existence of factions within OPEC, which are
generally classified into three groups:
1. ‡The group led by Saudi Arabia, the UAE and
Kuwait, who are in favour of increased supplies and
moderate pricing,
2. The group led by Libya, Iran and Algeria, who are
insistent on decreasing output for higher prices,
3. The in-between group including Nigeria, Venezuela,
Indonesia who have been known to take sides
depending on their own economic/political agenda.

31. Challenge’s Contd.
• Middle-Eastern Strife & Political instability in OPEC
oil-producing countries
- Mostly authoritarian states that use oil money as a
means of sustaining political power.
• Future technological developments in areas of
renewable energy sources
- According to IEA (International Energy Agency), the
increase in renewable usage will far outstrip annual
growth in energy liquids(crude oil and natural gas) as
a source of the world's power ‡Crude oil, OPEC will
become less important in the energy equation.

32. Upcoming Events
• OPEC Events:-
161st OPEC meeting will be held on 14 June 2012.
5th OPEC International Seminar will be held on 13-14
June 2012.

33. Queries