Opec - Organization of Petroleum Exporting Countries.

EVOLUTION OF OPEC
 The Organization of the Petroleum Exporting Countries
(OPEC) is a permanent, intergovernmental Organization, was
established in Baghdad.
 OPEC comprised 12 members: Algeria, Angola, Ecuador,
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.

 The 1960s
OPEC’s formation by five oil-producing developing countries in
Baghdad which occurred at a time of transition in the international
economic and political landscape.
 The 1970s
OPEC rose to international prominence
Member Countries took control of their domestic petroleum industries
and acquired pricing of crude oil on world markets.
 The 1980s
– Prices began to weaken.
OPEC’s share of the smaller oil market fell heavily and its total
petroleum revenue dropped below a third of earlier peaks, causing
severe economic hardship for many Member Countries.

 The 1990s
Prices moved less dramatically than in the 1970s and 1980s, and timely
OPEC action reduced the market impact of Middle East hostilities in 1990–91.
But excessive volatility and general price weakness dominated the decade .
Solid recovery followed in a more integrated oil market, which was
adjusting to the post-Soviet world, greater regionalism, globalisation, the
communications revolution and other high-tech trends.
 The 2000s
OPEC oil price band mechanism helped strengthen and stabilise crude
prices. But a combination of market forces, speculation and other factors
transformed the situation in 2004, pushing up prices and increasing volatility
in a well-supplied crude market.
 2010 Markets till now
• Main risk to the oil market.
• Heightened risks surrounding the international financial system weighed on
economies.
• Escalating social unrest in many parts of the world affected both supply and
demand, although the market remained relatively balanced.

WHAT ARE PETRODOLLARS?
 Definition : Petrodollar is a United State dollar
earned by the country through the sale of
petroleum.
 The term petrodollar was coined by Ibrahim Oweiss, a professor
of Economics at Georgetown University.
 Petrodollars are the primary source of government revenue in
many Middle Eastern countries. These funds represent a massive
amount of investment capital and, are often traded on the
eurocurrency market. They are also used for development
purposes.

BENEFITS FOR PETRODOLLARS
 Global demand for dollars.
Artificial demand for dollars was created by providing
incentives to countries that conduct oil trade to dollars.
 Global demand for US debt securities.
Recycle petrodollars by encouraging investment of profits
made from oil sales in US Debt securities.
 Buy Oil in domestic currency.

Oil Price Trends
 2006 – 2008 : Price of oil rose due to
surge in global demand
• The recession caused demand for
energy to shrink in late 2008
 Oil prices stabilized by October 2009
and established a trading range
between $60 and $80.
 For about three and half years the
price largely remained in the $90–
$120 range
 By December 2014, the price of
benchmark crude oil reached their
lowest prices since 2009.

Causes for Decline…
 U.S. shale oil production increased.
 The ‘No' vote in Greece on the economic program.
 Lower economic growth in China.
 Higher oil exports from Iran.
 Continuing growth in global
petroleum and other liquids inventories.

SHALE OIL REVOLUTION
 Definition-: Shale oil is an unconventional oil produced from oil shale rock
fragments by pyrolysis, hydrogenation, or thermal dissolution. These
processes convert the organic matter within the rock into synthetic oil & gas.
HISTORY :
 Shale oil extraction industries were established in France during the 1830s and
in Scotland during the 1840s. The oil was used as fuel, as a lubricant and lamp oil;
the Industrial Revolution had created additional demand for lighting. It served as a
substitute for the increasingly scarce and expensive whale oil.
 The discovery of crude oil in the Middle East during mid-century brought most of
these industries to a halt. In response to rising petroleum costs at the turn of the 21st
century, extraction operations have commenced, been explored, or been renewed in
the United States, China, Australia and Jordan.

IMPACT OF SHALE OIL
 Energy combines with labour and capital to produce economic
output (as measured by GDP).
 Import and export prices are modelled as a weighted average of
commodity and no commodity prices. A decrease in the price of oil
will improve the terms of trade for a net oil importer, and conversely
see them deteriorate for a net oil exporter.
 Oil prices are directly and
indirectly linked to consumer
prices. Lower Oil prices will
generally boost Consumer
spending power, especially in net
oil importing economies.

CHALLENGES OF SHALE OIL
 Governments in current net oil importing countries with potential shale oil
resource needs to understand the economic payback from creating policies
to encourage exploitation of shale oil (both on its own and relative to other
unconventional resources).
 Governments in OPEC nations and other major net oil exporters need to
assess the likely impact of shale oil on global oil prices and their own
revenues, budgets and economies.
 Oil companies have to assess their current portfolios and planned projects
against lower oil price scenarios.
 Businesses that support national and international oil companies with services
and equipment need to consider the implications for their strategy and
operating model.

Success of OPEC as a cartel and Challenges
to OPEC

Success of OPEC
as a cartel
 Secure and steady supply of oil
– OPEC understands it’s responsibility as a frontline energy source
and works to ensure a stable, secure, well-managed oil sector.
– The very first resolution of the Organization aims to achieve
stable oil prices, “with a view to eliminating harmful and
unnecessary fluctuations”
– A steady income for producing nations; an efficient, economic
and regular supply of petroleum to consuming nations; and a fair
return on their capital to investors.

Fifty years old – a success in itself
 Organization would not last long.
 Fifty years on, the small group of developing countries has evolved
into a group of 12 that is respected far and wide as an established
part of the international energy community.
 It has survived and it has prospered. It has also helped maintain
stable and regular supplies of oil to the market; expand its role on
the global stage;
 Helped enhance and build better cooperation and dialogue among
producers and consumers, and created a facility — the OPEC Fund
for International Development — for channeling aid to developing
nations

Sustainable development
 Establishment of effective bilateral and multilateral aid institutions,
OPEC Fund for International Development (OFID).
 Promotes South-South solidarity through cooperation between
OPEC Member Countries and other developing countries; primarily
by helping provide the financial resources for countries need to
realize their economic and social development goals.

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.

Strengthening of National Oil Companies
 OPEC attaches great importance to the continued strengthening of
its Member Country NOCs, and the further development of positive
and constructive NOC-to-NOC and NOC-to-IOC relationships.
 OPEC Member Countries strive to strengthen cooperation in
upstream and downstream scientific research and technological
development among themselves and with international institutions,
as well as widening and deepening dialogue with all industry
stakeholders.

Challenges to OPEC
 Short Term
 Dealing with the crisis of supply interruptions.
 Dealing with fluctuations in oil revenue because of variations in prices
and levels of production.
 Long Term
 Maintain its reference price band and a quota system.
 Make the quota system effective to maintain OPEC’s coherence and
unity.
 Dependence of their economies on a single main source of income

OPEC Quota System
 Introduced in an attempt to stabilize prices by controlling production
came in March 1982 amidst falling prices following a severe
contraction in world demand during the period 1980-86.
 They agreed upon quotas for each member country and set the
ceiling for a three-month period.
 The quota system has essentially never worked because various
members would produce beyond their quotas.

OPEC World Wide Share
 OPEC Share of World Crude Oil Reserves - According to current
estimates, more than 81% of the world's proven oil reserves are
located in OPEC Member Countries, with the bulk of OPEC oil
reserves in the Middle East, amounting to 66% of the OPEC total.
 80% of the world's oil reserves are located in just 13 countries
which make up OPEC (the Organization of the Petroleum Exporting
Countries). Algeria, Venezuela, Saudi Arabia, Iran, Iraq, Kuwait,
Angola, Indonesia, Ecuador, Libya, Nigeria, Qatar, and the United
Arab Emirates.

Opec - Organization of Petroleum Exporting Countries.

Opec - Organization of Petroleum Exporting Countries.

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Opec - Organization of Petroleum Exporting Countries.

Similar to Opec - Organization of Petroleum Exporting Countries. (20)

Recently uploaded

Recently uploaded (20)

Opec - Organization of Petroleum Exporting Countries.