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OPEC: A Successful Cartel?

An economic overview of OPEC in 2012

Adam Van Noort

on 28 November 2012

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Transcript of OPEC: A Successful Cartel?

OPEC and the Price of Gas The Organization of Petroleum Exporting Countries A Cartel in Decline A Christian Critique “Everyone who has been given much, much will be expected”
(Luke 12:48) An Economic Overview of the Cartel in 2012 OPEC: A Successful Cartel? “Do unto others as you would have them do unto you”
(Matthew 7:12) In Conclusion • OPEC is a large contributor that effects the price of gas for public consumers.

• Even though gas prices are unreasonably high, one of the initial reasons for the formation of OPEC was to prevent extreme changes in gas prices. • Even though, gas prices continue to rise in the long run, the increments in the increasing price have been minor.

• This is accomplished by OPEC attempting to keep the oil supply that they provide consistent.
• The Organization is intended to use the 12 participating countries to keep the oil supply consistent.
• When 1 of the 12 countries is under their given quota OPEC will compensate by having 1 of the other participating countries make up for the loss.
• Since OPEC controls the amount of oil that is provided to refiners when the supply is reduced the price of gas increases
• When the oil supply decreases refineries will process less gasoline in an attempt to preserve the oil that they have already accumulated.
• However, when the supply of gas is decreased the demand remains high, which increases the price of gas for consumers.
The Effect of Growing Demand - Developing nations are fueling a global increase in demand for oil

- This increase in demand has necessarily led to other non- OPEC nations increasing their oil production

- This has minimized OPEC's influence in the oil market OPEC Oil Crisis of 1973 S1 S2 Demand Demand S2 S1 Price of Oil Price of Oil Quantity of Oil Quantity of Oil Oil Market in the Long Run Oil Market in the Short Run The Elasticity of Oil OPEC's Internal Issues - Their quota system is flawed

- Member countries consistently overproduce their given quotas without any consequences

- Each country of the alliance wants to generate as much revenue as possible for themselves OPEC and the Refineries OPEC's Role OPEC's Quota System Controlling Oil Price Increases Why Did It Form? - Formed in response to America's Mandatory Oil Import quota Program (MOIP)

- Formed in Baghdad, Iraq in 1960 Member States Founding Members:
Iran, Iraq, Kuwait, Saudi Arabia and Venezuela

Other Current Members:
Algeria, Angola, Ecuador, Libya, Nigeria, Qatar and the United Arab Emirates OPEC's Oil Reserves Goals of OPEC -Increase the price of crude oil

-Generate a fair return on capital

-Stabilize oil prices within the international market - OPEC still has a significant impact on the global supply of oil

- However, rapid demand growth and the subsequent increase in other oil suppliers is weakening their influence

- They are gradually becoming just another player in this global market
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