OPEC

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OPEC

• Corey Merrill
• Kelsy Aston
• Chad Lunt
• Kelso Larsen
• So-Young Lee

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Outline

• Background Information Corey
• Current Situation Kelsy
• International Aspects So-Young
• Special Concerns Chad
• Future of OPEC - Kelso

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Current Situation
Background Information
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What is OPEC?

• Organization of Petroleum Exporting Countries
• Permanent inter-governmental organization
• 11 oil producing and exporting countries
  throughout Africa and Asia
• For these countries oil is the key to development
  
• 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

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Purpose

• OPECs mission is to coordinate unify the
  petroleum policies of Member Countries ensure
  the stabilization of oil prices in order to
  secure an efficient, economic regular supply of
  petroleum to consumers, a steady income to
  producers a fair return on capital to those
  investing in the petroleum industry

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Impacts of OPEC

• OPEC does not control the oil market
• OPEC did in fact set crude oil prices from the
  early 1970s to the mid-1980s, this is no longer
  the case
• Member Countries produce about 40 of the world's
  crude oil and 15 of its natural gas
• Exports represent about 55 of the crude oil
  traded internationally
• OPEC's oil reserves are sufficient to last more
  than 80 years, while non-OPEC oil producers'
  reserves might last less than 30 years

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Current Situation
Current Situation
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President of OPEC

• Edmund Daukoru
• From Bayelsa, an oil rich state in Nigeria
• Was a geologist
• Developed a career with Shell

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OPEC

• 11 members- Nigeria, Algeria, Libya, Iran, Iraq,
  Kuwait, Qatar, Saudi Arabia, United Arab
  Emirates, Venezuela, and Indonesia
• 41.7 of the worlds oil production comes from
  OPEC
• U.S. dollar is the unit of oil sales
• English is the official language

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OPEC Conferences

• Meets every March September
• Unify policies to promote stability and harmony
  in oil market
• Fundamentals are current market situations and
  forecasts i.e. current growth and supply demand
• New member applications are discussed
• Budgets are decided upon
• Recommendations and reports are submitted

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Goal

• Have stability in the market
• Deliver steady supply of oil to consumers
• Get oil to people at reasonable and fair prices
• To obtain these goals, OPEC voluntarily produces
  less oil

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The Current Market

• President Daukoru says The market is clearly
  oversupplied.
• Concerned with falling oil prices
• July prices 78 a barrel
• Current prices between 57-61
• OPEC decided to cut oil production output

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Current Situation
International Aspects
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International Aspects

• Function - Representatives of OPEC Member
  Countries (Heads of Delegation) meet at the OPEC
  Conference to co-ordinate and unify their
  petroleum policies in order to promote stability
  and harmony in the oil market.
• Supported in this by the OPEC Secretariat,
  directed by the Board of Governors and run by the
  Secretary General, and by various bodies
  including the Economic Commission and the
  Ministerial Monitoring Committee.
• Consider the current situation and forecasts of
  market fundamentals, such as economic growth
  rates and petroleum demand and supply scenarios.
  They then consider what, if any, changes they
  might make in their petroleum policies.
• http//www.opec.org/library/FAQs/aboutOPEC/q4.htm
  

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International Aspects

• How has it interacted with organizational clients
  to help solve problems?
• OPEC sets oil production quotas - stability and
  harmony in the petroleum market (e.g. If demand
  ?, or some oil producers are producing less oil,
  OPEC can increase its oil production, in order to
  prevent a sudden rise in prices. OPEC might also
  reduce its oil production in response to market
  conditions, as a means of countering falling
  price)
• OPEC controls the oil market - OPEC does not
  directly control the oil market, however, OPEC
  can have a strong influence on the oil market,
  especially if it decides to reduce or increase
  its level of supply.
• OPEC oil production affects oil prices - Non-OPEC
  producers can actively support the Organizations
  measures, since this will make OPECs decisions
  more effective and to everyones benefit. There
  are many factors that influence the prices paid
  by end consumers for oil products.
• OPEC Public Relations Information Department ,
  February 2005

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International Aspects

• OPEC influences world trade - The OPEC Member
  Countries established the OPEC Fund for
  Inter-national Development in January 1976, in
  order to promote cooperation between OPEC Member
  Countries and other developing states, and to
  particularly help poorer, low-income countries in
  pursuit of their social and economic advancement.
  
• OPEC supports environmental policies - OPEC is
  concerned about the environment and wants to
  ensure that it is clean and healthy for future
  generations. OPEC also supports sustainable
  economic development, which requires steady
  supplies of energy at reasonable prices.
• OPEC guarantees security of oil supply- OPEC
  recognizes the need for massive investment in
  exploration, drilling, pipelines and other oil
  related infrastructure and its Member Countries
  are investing to ensure continuous supply to fuel
  the engine of world economic growth consistency,
  transparency and certainty within the
  international oil community
• OPEC Public Relations Information Department,
  February 2005

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Current Situation
Special Concerns
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Special Concerns

• Political Instability
• Slowing Demand Growth
• Rebounding Non-OPEC Supply
• High Stock Levels

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Political Instability
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Iran

• March 2003 IAEA discovers Irans Nuclear
  enrichment facility.
• Fully Nuclear
• Anti-Israel Sentiment
• Ariel Sharon commands Israeli troops to prepare
  for war against nuclear Iran. (http//www.timesonl
  ine.co.uk/article/0,,2089-1920074,00.html)

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Iraq

• Continued conflict
• Impending civil war
• Ownership of energy resources

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Nigeria

• Nigerian Delta Insurgents (MEND Movement for the
  Emancipation of the Nigerian Delta)
• Constant harrasment to foreign oil workers.
• Oil rich states wish to secede.

Obasanjo
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Slowing Demand Growth

• 2006 the demand for OPEC crude is expected to
  average 28.7 mb/d, representing a downward
  revision of 0.2 mb/d
• 2007 the demand for OPEC crude is expected to
  average 28.1 mb/d, representing a decline of 0.6
  mb/d versus 2006

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Rebounding Non-OPEC Supply

• North America (Canada) filling in supply.
• Oil rich portions of Africa coming online.

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High Stock Levels

• Lack of cooperation
• Poor communication

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Current Situation
Future of OPEC
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Future of OPEC

• Dynamics-as-Usual (DAU)
• Protracted Market Tightness (PMT)
• Prolonged Soft Market (PSM)

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DAU Assumptions

• Average growth rates of last 15 years
• Oil demand increases annually by 1.5 mbd
• 75 of increase from developing countries
• Transportation sector accounts for ½ of increase

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Future Demand Factors

• Health of World Economy
• Consuming Countries Policies
• Technological Developments
• Transportation Sector
• Oil Production
• Non-OPEC Supply
• Quality Issues

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OPEC Strategy

• Price Stability
• Downstream Bottlenecks
• Technology Environment
• Trade Barriers
• Increased Cohesion