When firms agree to collude , that is they agree to a certain price and quantity for a good or service, they create a cartel. A cartel is a type of oligopoly. The firms must trust each other not to drop their price to undercut the others or increase their output. Because of this, there is less control over the market than there would be under a monopoly structure.
Although OPEC has the structure and intent of a cartel, it fails to function properly to achieve its objective of influencing global oil supply. The first problem that OPEC suffers from is that they do not control the majority of oil supply in the world, that is they don't have the market power.
S, Norway, Mexico, Brazil and others. This means that OPEC countries have to compete with other global players who are free to operate in the market as they please, whereas OPEC nations have to coordinate with each other. Since its inception, OPEC has had problems dealing with the inherent problem of coordinating their policies. The nature of a cartel depends on the members agreeing and coordinating their policies to ensure and equal share of the market and to discourage competition.
There is an extensive list of events that affected OPEC and its cooperation since its existence such as numerous wars, assassinations, ongoing political conflicts, terrorism etc. This work explores how seven companies came to dominate the oil industry and how the oil-producing countries later responded with the creation of OPEC. Short histories of each of Seven Sisters are located in chapters three and four.
Ratner, Michael. Congressional Research Service, August 2, Their website provides detailed information and annual reports going back to It is a United Nations-accredited, non-advocacy, non-political organization based in the United Kingdom. World Energy Council WEC External "Formed in , the Council is the UN-accredited global energy body, representing the entire energy spectrum, with more than member organisations located in over 90 countries and drawn from governments, private and state corporations, academia, NGOs and energy-related stakeholders.
Its mission is to advocate for natural gas to be an integral part of a sustainable energy system. It is also to promote the political, technical, and economic progress of the natural gas industry. It has more than members. National Oil and Gas Associations Natural Gas Council is made up of five associations that cover the entire United States oil and gas industry, "from the wellhead to the burner tip.
Natural Gas Council External The Council addresses industry issues and concerns, and issues joint statements, reports, letters and filings representing the unified views of the industry. They also publish research and statistics on a variety of oil industry topics. American Gas Association External AGA's website includes natural gas policy profiles by state, American Gas magazine, a glossary, and education overview of natural gas.
Independent Petroleum Association of America External IPAA provides resources for independent oil and gas producers, such as talking points, press kits, and links to resources. They also publish the Energy In Depth website, which advocates for the development of onshore energy resources.
Natural Gas Supply Association External NGSA publishes short guides to natural gas topics and studies and research reports, with the purpose of supporting a competitive marketplace for specifically downstream activities of the industry.
Escalating social unrest in many parts of the world affected both supply and demand throughout the first half of the decade, although the market remained relatively balanced. The oil market was stable between and mid, before a combination of speculation and oversupply caused it to contract. Trade patterns then continued to shift, with global oil demand growing, particularly in the Asian region. Market conditions led to the emergence of the unprecedented Declaration of Cooperation in December , with OPEC Members and 10 non-OPEC oil-producing countries coming together to help rebalance the market, bring down inventory levels and support oil market stability.
In , the Charter of Cooperation — a long-term platform dedicated to cooperation and the exchange of views and information — was established. OPEC held its 5th, 6th and 7th International Seminars in , and , respectively, which brought together an unprecedented number of representatives from producing and consuming nations, national and international oil companies, along with journalists and industry analysts.
OPEC continued to seek stability in the market, and looked to further enhance its dialogue and cooperation with producers, consumers, international organizations, institutions and other industry stakeholders, noting that the need for energy dialogue has never been greater.
The decade witnessed more understanding and appreciation of the role that OPEC has played in helping stabilize the global oil market, in the interests of both producers and consumers. The new decade witnessed an unprecedented beginning with the outbreak of the COVID pandemic pervading almost every aspect of daily lives.
Saudi Arabia has usually kept more than 1. OPEC spare capacity provides an indicator of the world oil market's ability to respond to potential crises that reduce oil supplies.
As a result, oil prices tend to incorporate a rising risk premium when OPEC spare capacity reaches low levels. From through , OPEC's total spare capacity remained near or below 2 million barrels per day or less than 3 percent of global supply , which provided very little cushion for fluctuations in supply in a context of rapidly rising demand. Markets are influenced by geopolitical events within and between OPEC countries because they have, historically, resulted in reductions in oil production.
Given OPEC's market significance, events that entail an actual or future potential loss of oil supplies can produce strong reactions in oil prices. Low spare capacity limits OPEC's ability to respond to demand and price increases, while high spare capacity indicates a withholding of production presumably for price management purposes. Despite OPEC's efforts to manage production and maintain targeted price levels, member countries do not always comply with the production targets adopted by the organization.
Oil prices can be affected by member countries' unwillingness to maintain production targets.
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