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Economics

The document discusses the role of OPEC and OPEC Plus in determining oil prices, outlining their definitions, objectives, and mechanisms for influencing market prices through production quotas. It highlights historical impacts of OPEC agreements on oil prices, external challenges to OPEC's control, and the future outlook of the organization in the evolving energy market. Overall, while OPEC remains significant in stabilizing oil prices, it faces increasing challenges from non-OPEC production and alternative energy sources.

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13 views15 pages

Economics

The document discusses the role of OPEC and OPEC Plus in determining oil prices, outlining their definitions, objectives, and mechanisms for influencing market prices through production quotas. It highlights historical impacts of OPEC agreements on oil prices, external challenges to OPEC's control, and the future outlook of the organization in the evolving energy market. Overall, while OPEC remains significant in stabilizing oil prices, it faces increasing challenges from non-OPEC production and alternative energy sources.

Uploaded by

hindn162
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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University of Technology

Oil and Gas Engineering Department


Engineering Economics
Fourth Stage

The role of OPEC agreement in determining oil prices

Outcome (4) Students Name:


An ability to communicate effectively with a range of audiences
Performance Indector for each outcome Marks Noor Al-Huda Riyadh Mohammed
A Writting skills 20% Mariam falah kadhim
B Verbal presentation skills 20% Nabaa Ammar Abdaljabbar
C content 20%
Noor Alsader Muhammed
Noor mustafa abbas
D Organization 20%
Hind Nabil
E Data presentation 20%
Total Marks
Outline

• OPEC Definition
• OPEC Plus Definition
• Objective of OPEC
• Impact of OPEC Agreements on Oil Prices
• The Mechanisms of the OPEC Agreement
• The Effectiveness of OPEC in Controlling Oil Prices
• External Factors Challenging OPEC’s Control
• Future Outlook of OPEC in the Energy Market
• Conclusion
OPEC Definition

What does OPEC mean ?

The Organization of the Petroleum Exporting


Countries (OPEC) is an intergovernmental
organization of 13 countries oil-producing
countries, aiming to coordinate production and
marketing policies among member states. . It
was founded on September 14, 1960 in
Baghdad by the first five members (Iran, Iraq,
Kuwait, Saudi Arabia and Venezuela), and has
been headquartered in Vienna, Austria since
1965. According to OPEC, by the end of 2021,
80.4% of the world's proven oil reserves are in
OPEC member countries.
OPEC Definition

OPEC currently consists of 13 member countries,


and here is the list of member countries and the year
they joined:
- Algeria (1969)
- Angola (2007)
- Equatorial Guinea (2017) withdrew in 2022
- Gabon (1975)
- Iran (1960)
- Iraq (1960)
- Kuwait (1960)
- Libya (1962)
- Nigeria (1971)
- Republic of the Congo (2018)
- Saudi Arabia (1960)
- United Arab Emirates (1967)
- Venezuela (1960)
OPEC Plus Definition

What does OPEC Plus mean ?

OPEC+ (Organization of the Petroleum


Exporting Countries Plus) is an alliance of oil-
producing countries that includes the 13 OPEC
members and 11 non-OPEC nations. It was
formed in 2016 to coordinate oil production
policies and manage global oil supply and
prices. The key non-OPEC members in this
group include Russia, Kazakhstan, Mexico, and
others. The group makes collective decisions
on oil output levels to stabilize the oil market,
influence prices, and balance supply and
demand.
OPEC Plus Definition

OPEC+ comprises the 13 OPEC members and 11 non-


OPEC oil-producing countries. The non-OPEC members,
include:
• Azerbaijan
• Bahrain
• Brunei
• Brazil
• Kazakhstan
• Malaysia
• Mexico
• Oman
• Russia
• Sudan
• South Sudan
These countries collaborate with OPEC to coordinate oil
production policies and stabilize global oil markets.
Objectives of OPEC

OPEC’s Main Objectives:

1.Stabilize Oil Markets: Ensure stability and balance in the global oil market.
2.Regulate Oil Production: Coordinate and unify petroleum policies among member
countries.
3.Fair and Stable Prices: Secure fair and stable oil prices for producers.
4.Steady Income for Members: Provide a steady income to producing countries.
5.Efficient Supply to Consumers: Ensure an efficient and regular supply of petroleum to
consumers.
6.Return on Capital for Investors: Promote fair returns on investments in the oil industry.
Impact of OPEC on Oil Prices

Impact of OPEC Agreements on Oil Prices:

1. Production decrease→ Price Increase


• Reduces oil supply, leading to higher prices.
• Increases revenues for oil-exporting countries.
• Can cause inflation in oil-importing nations.
• Example: OPEC+ cuts in 2020 helped stabilize prices after the COVID-19 demand
collapse.
2. Production Increases → Price Decrease
• Expands oil supply, causing prices to drop.
• Lowers energy costs but may hurt oil producers’ economies.
• Example: The 2014 production surge led to a sharp decline in oil prices.
Impact of OPEC on Oil Prices
This chart shows the impact of OPEC on global oil price volatility (in dollars per barrel) from
1970 to 2020. A clear correlation can be observed between OPEC agreements (such as
reducing or increasing production) and price changes, where production restrictions lead to
higher prices (as in the 1973 crisis), while disagreements or increasing supply cause them to
collapse (such as the 2020 crisis). The chart highlights how OPEC's oil policies control the
global market balance between supply and demand.
The Effectiveness of OPEC in
Controlling Oil Prices

Historical Impact of OPEC Agreements

Throughout its history, OPEC agreements have played a crucial role in shaping global oil
prices. Some notable instances include:
• The 1973 Oil Crisis: OPEC imposed an oil embargo on Western countries, causing
prices to quadruple.
• The 1980s Oil Glut: OPEC attempted to maintain high prices, but non-OPEC
production increased, leading to a market oversupply and a price crash.
• The 2014 Oil Price Collapse: A surge in U.S. shale oil production led to oversupply,
challenging OPEC’s ability to control prices.
• The 2020 COVID-19 Crisis: OPEC+ implemented record production cuts to counter
the demand collapse caused by global lockdowns.
The Mechanisms of the
OPEC Agreement

Production Quotas and Their Impact on Prices

OPEC’s primary tool for influencing oil prices is the implementation of production quotas.
These quotas set limits on how much oil each member country can produce, helping to
regulate supply in the market. The logic behind this mechanism is straightforward:
• Reducing production leads to a lower supply, which typically drives prices up.
• Increasing production results in higher supply, often causing prices to drop.

For example, during periods of economic slowdown when oil demand declines, OPEC
may reduce output to prevent prices from collapsing. Conversely, in times of high demand,
it may increase production to avoid supply shortages and price spikes.
External Factors Challenging
OPEC’s Control:

There are many external factors challenging OPEC’s control like:

1. U.S. Shale Oil Production: U.S. shale producers can quickly adjust output, reducing
OPEC’s control over prices.
• Example: In 2014-2016, OPEC’s market flooding attempt caused a price crash.
2. Alternative Energy and Climate Policies: Global shifts to renewable energy and
environmental policies reduce oil demand, weakening OPEC’s pricing power.
• Example: EU and U.S. climate policies aim to reduce fossil fuel use.
3. Geopolitical and Economic Events: Wars, recessions, and pandemics can disrupt oil
prices despite OPEC’s efforts.
• Example: The 2008 financial crisis and 2020 COVID-19 pandemic led to sharp price
drops.
Future Outlook of OPEC in
the Energy Market

OPEC’s role in the global energy market is evolving. Key areas of focus for the future
include:
1. Sustainability and Energy Transition: As countries shift towards renewable energy,
OPEC must adapt by investing in alternative energy sources.
2. Strategic Alliances: OPEC+ has proven to be an effective tool in stabilizing prices.
Continued collaboration with non-OPEC members will be crucial.
3. Market Adaptability: To remain relevant, OPEC must be flexible in production
adjustments and pricing strategies.
4. Impact of Technology: The development of electric vehicles and advancements in
energy storage could reduce global oil dependence.
5. Geopolitical Challenges: Political tensions, economic sanctions, and regional
conflicts will continue to affect oil prices and production levels
Conclusion

OPEC remains a key player in the global oil market, working to stabilize
prices through coordinated efforts among its member countries and adjusting
production quotas. However, new challenges, such as the rise in production
from non-OPEC countries and the growth of alternative energy sources, may
reduce OPEC’s ability to fully control oil prices in the future.
Thank you

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