How the OPEC Influences the International Economy - Research Paper Example

Student’s Name: Instructor’s Name: Class Name: Date Assignment is due: How the OPEC influences the international economy Abstract This study focuses on finding answers to fundamental questions pertaining to the subject of the way International Economy is influenced by certain top international organisations/institutions and their performance of their duties with regard to regulation of the economy as well. For the purpose of this study, role of OPEC and the manner in which it influences the International Economy is being considered. In this regard it submitted that OPEC dominates and controls one of the most essential propellers of economy, i.e. petroleum prices as it exports around 55 % of the petroleum products traded internationally and as such it has an extremely strong influence on the world economy. OPEC can and has in the past dominated the whole oil demand-supply scenario with respect to International Economy by increasing or decreasing the Petroleum production by the member countries in response to or anticipation of changing market conditions. It is submitted that any International Economy’s fate is decided by the supply of petroleum products it has and the rate at which it has access to the petroleum products because in the absence of the same, it is impossible for any country to function regardless of its size or economic might. For example during the recent Global Financial Crisis (GFC), when the demand for petroleum products fell down steadily accordingly there was a slump in the price of the products as well, OPEC responded by reducing the supply considerably, thereby maintaining the prices of petroleum products despite the lack of ability among the consumers to pay a large amount of money for access to petroleum. This action on the part of OPEC was not well justified, because even though maintaining steady prices of petroleum products is necessary, at the same time, as the premium petroleum supplying organisation, it had a responsibility of ensuring that petroleum products are available to people at reasonably affordable prices because in the absence of the same, it would be exceedingly difficult for International Economy to recover from Recession. OPEC has had a history of trying to pressurise the world by controlling the supply of petroleum and the oil embargo that it imposed against the United States of America in 1973 apart from the use of its controlling stake in the supply of petroleum products to dissuade the Western World from supporting Israel in the Arab Israel conflict are glaring examples that despite its manifesto of maintain a steady supply of petroleum products to the world along with maintaining steady petroleum prices, it has at times held the world hostage because it controls the oil market world over. The influence of OPEC over the international economy is so severe that whenever it so plans, it can send tizzy among all the leading economies by reducing oil production which would make petroleum prices go extremely high and if the economy in question decides to subsidise the supply, in that case, it will result in heavy losses to the exchequer. This study accordingly examines the role of this cartel in controlling and influencing the International Economy. Introduction OPEC (Organisation of Petroleum Exporting Countries) is a trading bloc that comprises of 12 countries which regulate the fuel supply and prices of petroleum products among its member countries. OPEC exerts a particularly significant influence on the way the global economy operates, considering that it exports 55% of all the petroleum that are traded at the international level. In the past, OPEC has for a long time been influencing the demand-supply patterns of petroleum products internationally by choosing when to increase or decrease the production of this vital commodity. Role of OPEC in demand and supply patterns of petroleum trade In every petroleum supply and demand shock that rocks the modern world, attention shifts to member countries that form OPEC. Through measurement of real global economic activity, it is easy to determine the impact that OPEC tends to exert on international trade whenever there are supply and demand concerns. Supply and demand issues of crude oil Kilian observes that there are various components that can be analyzed through structural decomposition of real prices of crude oil in order to understand supply and demand issues better. Some oil supply shocks are driven by the political events that take place in OPEC countries. However, some aggregate shocks to crude oil demand arise from a corresponding demand in certain industrial commodities. Some demand shocks, though, are specific to the global crude market. In this latter scenario, OPEC plays a key role in regulate the supply of petroleum products into the international market. Such scenarios have been observed to influence prices of crude oil since the mid 1970s. Killian’s study also explains the causes of various oil price shocks that the world has been experiencing since 1979 (3). The dollar strength and weakness OPEC influences the real GDP and rates of CPI inflation in even the world’s most powerful economy, the U.S. whenever this country attempts to deal with the problem of high prices of oil, a careful account of the events leading to the undesirable situation leads up to the powerful influence that OPEC maintains globally. The strength of this influence is captured by Killian’s observation that since the mid-1970s, the U.S has been influenced more by external economic shocks that drive prices of oil than by domestic policies and factors (5). China and other Non-OPEC members: the duopoly dimension However, as Hao observes, the emergence of China as a formidable world economic power threatens to offset the increasing dominance of oil markets by OPEC (33). Hao adds that China’s efforts to prospect for oil in third world countries appears to lend additional power to the modest influence of non-OPEC members in international oil market (36). Al-Khalaf indicates that China’s maneuvers are made possible by the fact that many African countries have already shed off their colonial status, enabling them to exploit their oil wealth potential maximally (245). International organizations constitute a formidable force in the category of non-OPEC entities. The Energy Information Administration (EIA) and the International Energy Agency (IEA), for instance, project a much greater reliance on the Middle Eastern oil within the next two decades. Hence, they predict a distinct increase in the market share among Middle Eastern oil exporters. During a rise in global demand, OPEC’s pricing power tends to be impacted on through the erosion of members’ spare capacity. During the early 1990s, persistent increase in demand for oil globally outpaced the rate at which non-OPEC members were supplying oil into the market almost annually. The influence of non-OPEC member countries comes into play most forcefully when the OPEC members’ spare capacity has been eroded, as it did throughout the 1990s. During this time, there was a tremendous increase in Russia’s level of production. As OPEC struggled to put up with increased demand for oil, many other events were making the already worsening situation even deteriorate even further, for instance, the sanctions in Iran, Iraq and Libya, Indonesia’s failure to arrest declines in production, and striking oil workers in Venezuela. In times when the OPEC fails to set the standard in terms of pricing, non-OPEC countries take advantage of this situation and become more assertive. Such times arise when majority or all of OPEC members are continually producing close to or at maximum capacity. At such times, OPEC tends to lose influence on prices and Saudi Arabia, the core oil producer, momentarily ceases to be the price maker. Market skepticism about the spare capacity of OPEC compounds the pricing problem and drags non-OPEC members closer into the limelight. At such times, announcement of increases in production by OPEC end up being ineffective. World oil price fluctuations: OPEC’s Role Gately observes that OPEC led to the Oil price quadrupling that took place between 1973 and 1974 (1100). MacAvoy indicates that the OPEC cartel was responsible for the oil price increases that took place throughout the 1970s and early 1980s. Ramcharran observes that OPEC also influences the international economy by causing oil prices to fall (102). Sakbani indicates that this arises as a result of overproduction by some OPEC member countries as a countermeasure against projected supply trends of their non-OPEC neighbors (76). Shaaf notes that during the period between 1970 and 1983, the terms of trade imposed by OPEC in terms of the dollar’s strength and weakness improved most in 1974 but four years later, it sunk into the greatest depths of deterioration (126). At first sight the impression created by OPEC is that of an organization that plays a rather limited role in the way world oil prices are formed. Like other oil exporters, OPEC countries tend to just take a market price from the existing spot market, and in the case of recent trends, futures market, before plugging it in the pricing formula in order to arrive at a price at which their oil will be sold. However, this basic description is not enough to realistically portray the role that OPEC plays in formation of prices. Through the imposition of changing production quotas, OPEC led by Saudi Arabia, its dominant player, is always bound to exert an influence on oil prices. The basis on which OPEC sets production quotas is its assessment of the market trends in terms of supply. Oil prices tend to fluctuate partly according to how effectively OPEC does it calculation, which is clear in the process of calculating production quotas. OPEC’s only hope is always to influence price movements in the direction of a target zone or target level. In a framework of supply-demand, the prices of oil is determined by both OPEC and non-OPEC suppliers as well as the oil that arrives from OPEC members who fail to abide by the set quotas. The main difficulty arises from the fact that these supplies can never be predicted with accuracy, and that there are many other factors at play apart from prices. In this case, all OPEC can do is hope that the resulting oil price is close to the cartel’s preferred price. In such a context, all models that regard OPEC simply as a market price setter in the task of maximizing the net present value of all oil receipts are of limited usefulness. From the perspective that puts emphasis on the bureaucratic nature of OPEC in price fluctuations, the cartel is viewed as a cooperative enterprise that is weighed down by the cost of forging a sense of consensus among all members. Therefore, it is perceived to be always partially impaired in the pursuit of the common good. In the current context whereby oil prices are increasingly being wholly determined in the futures market, the task of achieving the desired price target for purposes of maximizing revenues has become increasingly difficult. The influence of OPEC on prices appears to be now largely on the expectations of various participants in the futures market. In principle, though, quota decision may be viewed as a crucial signal to the current market about the preferred range of prices for OPEC. The critical thing worth noting here is that there is no guarantee that signalling mechanisms will always work. Significant thing to note here is that depends on the interpretation of these three signals by the market. Specifically, the extent to which the signal is effective depends on whether there is a belief in the market on OPEC’s ability to undertake all the necessary output adjustments during different market conditions. On many occasions, OPEC has succeeded in the defence of the oil price. However, the adjustment of output downwards has tended to prove unsuccessful. In case of a global fall in demand for oil, non-OPEC suppliers just continue to produce at their all-time maximum potential. In their efforts to defend the price that they are targeting, OPEC members would stand by production cuts. However, owing to divergent features, bargaining power, different interests and needs of member countries, OPEC finds itself struggling to reach agreement on where production cuts should be allocated. Sometimes agreements are reached, whereby the need for a monitoring system is always felt since member countries do not have to fear any punishment for not adhering to the measures that have been agreed on. The system that OPEC has been using over the years to effect production cuts is pro-rata. When production cuts are significant on the basis of this approach, the countries to suffer are the small producers since they find it difficult to reduce their production levels drastically. The main cause of objection by such producers is often political rivalry, which the small producers tend to use as a scapegoat for remaining adamant and going against the course of action agreed on by all OPEC member countries. OPEC members prefer to wait and see before increase output instead of increasing output on the basis of future demand forecasts that turn out to be false. Meanwhile, agreements for increasing quotas are always easier to reach as well as implement during a global rise in demand. The pricing power exhibited by OPEC is not straightforward. This lack of straightforwardness necessitates a closer analysis of OPEC behavior whenever an empirical or theoretical model for explaining oil pricing mechanisms is being conceived. In this regard, OPEC’s behavior has to be considered inconstant, for this is what it is, such that it can exhibit variation in terms of conduct with crucial implications on price dynamics within the oil market. Moreover, OPEC’s influence is asymmetrical, although this depends on whether the response is being targeted on falling or rising global oil demand. The price band mechanism that was adopted by OPEC in 2000 may be considered a signalling mechanism. Under this mechanism, a target range was set for OPEC’s basket price ranging between US$22 and US$38 for every barrel of oil. The rule in this mechanism is that whenever prices fall below the floor for just ten consecutive days, OPEC automatically cuts production. Conversely, if prices shoot up above the upper band within 20 days, OPEC automatically increases production. The position of OPEC as a partial monopolist can be argued from the perspective that the lower prices set in the cartel’s mechanism are only practically probable if OPEC broke up. On the other hand, the upper band is set in such a way that prevention measures are put in the stimulation as well as production of unconventional oil that is based on coal or oil sand. The prediction here is that crude prices that are above $30 cannot be sustained for a long period. A further testimony for lack of a straightforward approach in OPEC’s determination of prices arises from the invalidity of the cartel’s target price zone. Specifically, if the price exceeds the upper band, OPEC does not respond by increasing supplies. Moreover, when the market is very tight and the spare capacity is extremely low, the relevance of the upper band is completely lost since OPEC loses the ability to defend it. This leaves out the floor as the most crucial feature of the cartel’s price band. OPEC is always able to defend the lower price limit by cutting production. In 2005, the difficulty in the management of the higher price target zone within a tight market led OPEC to impose suspension on its oil band mechanism that had been introduced five years earlier. In other words, although OPEC continually sends signals to all futures markets, the practical impacts of these signals depends on how participants understand their implications and the prevailing perceptions of the policy’s credibility. OPEC’s response to the recent global financial crisis During the recent Global Financial Crisis (GFC), there was a slump in price of petroleum because of a sharp drop in demand for various petroleum products. By reducing supply considerably, OPEC was able to maintain the prevailing prices of crude oil despite the inability by consumers to spend much to access petroleum. If OPEC member countries had dropped the prices of crude in response to the forces of supply and demand, the cartel would have played a pivotal role in ending the global financial crisis. Effect of reduction of supply by OPEC during the financial crisis In early 2009, OPEC faced one of the toughest choices in decades; the member countries were confronted with the need to decide on whether to slash oil output in order to boost revenues or to do nothing in response to the global financial crisis. The former option, through carrying the prospects of boosts in revenue, could easily sink the world deeper into the economic crisis. OPEC meetings are often clear cut. If all the oil ministers of the organization think that oil prices are too low, the unanimous decision is often to crimp output. Hochman observes that in the absence of an optimal export tax model, these ministers decided to crimp output after holding two meetings in the beginning of 2009 (2). If oil becomes too pricey, as it did in 2008, they decide to boost production. If the 12-member oil ministers agree that they are happy with the prevailing market trend, they let the status quo remain. OPEC’s terms of trade during the recession and future prospects Recently, notes Shaaf, a strong dollar has markedly improved the position of OPEC profoundly (122). However, the high prices of imports in recent years as well as a reduction of oil prices in 1983 appear to offset this impact substantially. Hashim says that the future of OPEC’s terms of trade in international trade is dependent on the strength of the dollar, oil price changes, and future world inflation (67). OPEC’s future terms of trade are expected to change in response to prevailing economic circumstances globally. The influence of this cartel is likely to continue being a formidable force far into the future if all OPEC members maintain unity. The terms of trade imposed by OPEC in 2009 should also be viewed against the influence of production in giant oil fields. Höök observes that historically, a decline has been observed in the production levels in the world’s giant oil fields (2268). The separation of sub-classes has been necessary in the identification of this long-term trend. This is because massive differences exist between land and offshore fields. Similarly, immense differences exist between OPEC and non-OPEC fields. The evolution of decline rates in the past decades had a destabilizing effect on the 2009 terms of trade that OPEC used in order to maximize gains from crude oil with a global economy that was struggling with unfavourable business trends. New technologies and production came in handy for OPEC nations in making calculated measures in negotiating terms of trade with oil buyers. These factors have significant, far-reaching implications for the future. This is because, the most crucial world oil production base, which is giant fields, will continue declining more rapidly in the foreseeable future. This is why a looming oil supply challenge in the future appears inevitable. The declining level of oil production is not just high but it will continue to increase in the future. Critical analysis of OPEC decision regarding pricing policy Many observers consider the world oil market as a mere puzzle. Smith says that oil prices are always volatile (149). They spiked during the summer of 2008 and speculators did not have a satisfactory explanation for this situation. OPEC members tend to differ with regard to their respective recoverable resources, stages of development, rates of exploitation, and political systems. This diversity is expected to continue intensifying as the membership keeps growing. Efforts to keep increasing OPEC prices have been not only successful in the course of the previous two periods (1973-1974 and 1979 and 1980) but conditions in the international markets would have readily raised these prices without the intervention of OPEC. The periods of falling demand are always a reflection of a tendency among members to adjust production instead of competing with lower prices. This strategy always affects various development programs. However, OPEC countries tend to expose themselves to suffering whenever oil consumers start making up for the supply shortfalls by seeking supply from non-OPEC oil producers. The reluctance by OPEC, especially Saudi Arabia, to reduce its surplus is an indication that OPEC has a major impact in keeping oil prices up under all surplus conditions. Since the oil price shock of 1973, the behavior of OPEC has continued receiving considerable attention from in both the media and academic literature. There are many conflicting empirical and theoretical interpretations on the nature of OPEC and the way it influences world oil markets. The debate has not tended to be on whether OPEC imposes restrictions on output, but on the reasons behind all these restrictions. Ivanhoe observes that some studies put emphasis on the production decisions that are made with specific reference to the budgetary needs, which in turn are dependent on the absorptive capacities of various domestic economies (28). Production cuts during the 1970s have also been explained in terms of the property rights transfer from international oil economies to various national governments, which often tend to possess lower discount rates. An alternative explanation has been use of the concept of output restriction in terms of actions that are coordinated by OPEC members. Fattouh notes that OPEC behavior ranges brings out different traits which attract defining terms such as a ‘two-block’ cartel, clumsy cartel, dominant firm, loosely co-operating oligopoly, residual firm monopoly, and most recently, bureaucratic cartel (2). OPEC behavior has also been thought to oscillate between different positions but always portraying the image of a vacillating federation of oil producers. The available empirical and theoretical evidence has not helped a great deal in narrowing these different views. Griffin indicates that the empirical approach in place in the study of OPEC behavior and its lasting pricing power has been dominated by the observation made in the mid 1980s to the effect that empirical studies tend to ‘reach out to the shelf of various economic models in order to select one and to validate the choice it proposes by pointing out to various selected events that are consistent with the model’s selection’ (954). There are many switches in perceptions from one extreme end where the cartel is perceived to be a limited-role player to the other where it is perceived to be an effective price-setter. These switches were rather apparent during the oil price collapse of 1998 followed by the oil price hike of 2004. When the price per barrel hit the $10-mark in Dubai, many observers insisted that OPEC had already lost credibility as a defender of oil prices, and, therefore, many of them prophesied its demise. However, the perception of an ineffective OPEC was duly reversed within a few months, when many media observers considered the events of 1997 as an induction point for great cooperation among various members and ushering in a new dawn. Between March 1998 and March 1999, OPEC imposed two production cuts in a bid to end the continued slide in oil prices. Members were very cohesive in implementing this measure. This worked well in contradicting the earlier view that OPEC could no longer control prices. However, this time round, the main reason why OPEC had lost its pricing power was its loss of excess capacity. Suggestion on how to improve the OPEC and its operations (in terms of responsibility) Today’s volatile market is in need of the reassurance from OPEC that the organization is committed to stable, secure supply at all times, with reasonable prices. Efforts by OPEC to react positively to this call of responsibility from oil consumers are yet to be fully highlighted by economists and observers. First, OPEC should be on the forefront in ensuring that market stabilization measures are always in place. Whenever there is a surge in demand, OPEC member countries should introduce on-stream new production capacity. The aim of this measure would be to establish and sustain a comfortable capacity level, the aim being to help calm markets whenever there are expectations for demand to continue growing strongly. Secondly, OPEC needs to pay attention to pay more attention to all downstream aspects of the supply chain. Such a measure would be in the interest of the stability of the entire oil market. Concrete measures should be taken to encourage many investors to enter into the refining sector, especially the areas of conversion capacity. This area has been lagging far behind market requirements. This is an urgent challenge that also includes conformation to all new product specifications. Although their core responsibility will always be in the upstream, all OPEC member countries need to take the initiative to invest in many downstream projects. Such projects may be undertaken in partnership with others or on the OPEC’s volition alone. However, in the absence of adequate and timely measures on the part of the main consuming countries, today’s exceedingly high and volatile prices will most likely remain a dominant feature in the market. As things stand now, it does not seem that the prevailing in refinery capacity has the ability to match growth demand in the future. Moreover, concerns have been raised about possible disruptions in supply in the future as a result of increased geopolitical tensions. These factors have tended to find reflection in increased speculation within features markets, specifically through continued rise in the activity of non-commercials, mainly trust funds and pensions. This makes the market become over-responsive and extremely nervous to external impulses. In these situations, it is not possible to justify price levels on the basis of crude fundamentals alone. OPEC member countries should take time from their preoccupation with crude oil demand and supply math to assess non-commercials in order to be able to adopt a balanced strategy with high chances of success. Whenever the issue of non-commercials such as trust funds and pensions comes to the fore, it is clear that there are no winners in the situation that bring about. Excessive volatility in the market can lead to adverse effects on industry activities at every level. Ultimately, this can have negative repercussions for both consumers and producers. In particular, it can be detrimental to future investment efforts in production capacity, just as it can for the domestic development initiatives of oil-producing countries. Thirdly, OPEC member countries should be aware of the bitter reality that if prices are so high that it is impossible to sustain them, they may as well soon be followed by exceedingly low prices, followed by reduced revenues shortly afterwards. This situation occurred during the 1980s, with dramatic consequences for all OPEC member countries as well as their aspirations of maintaining sound and sustained economic development. On the basis of the recent high oil prices, indications in the world economy are that the global economy is becoming less sensitive to increases in oil prices today than it used to three decades ago. The currently high oil prices do not appear to be impacting negatively on the global robust rate of economic growth. However, this is not a call for OPEC to be complacent. Already, there are telling signs that the persistence of current price levels will eventually begin to impact negatively on the growth of some economies. Already, some developing countries in Latin America and Asia are beginning to feel the heat of high crude oil prices. OPEC faced the awesome challenge of maintaining market order and stability. Fortunately, the organization has the resources needed for this undertaking. It can meet the growing oil requirements as well as ensure that the market is supplied with crude oil at all times, and at prices that are reasonable and compatible with the robust growth being experienced globally. Elements of both timeliness and efficiency are needed in the pursuit of all development activities in which OPEC members engage. Moreover, OPEC’s long-term strategy should envisage an enhancement in the role of all national companies in OPEC member countries. Moreover, close cooperation would ensure that crucial resources such as industrial networks, technology, knowledge and experience are shared in order to avoid needless duplication of these resources. However, uncertainties will always exist in every sound investment planning efforts. Uncertainties make the efforts look like a hazardous business, particularly in an industry characterized by exceedingly long lead times and enormous capital requirements. At the heart of these uncertainties are future economic growth rates, environmental policies, consumer government energy, the oil price path and future technological developments. On the other hand, OPEC member countries should be careful not to over-invest since in the long-run, the heavy costs would eventually be borne by oil consumers. On the other hand, under-investment poses the undesired effect of severe price movements. Emphasis, therefore, should be on reduction of uncertainties and sharing of all the risks involved in the stabilization of the global crude oil market. Conclusion OPEC has for a long time exerted influence on the international economy by virtue of the ability to control 55% of all the oil that is traded in the international market. The organization has in the past been a dominant force mainly its policy of increasing and lowering the level of oil production by all member countries in response to or anticipation of changes in demand-supply trends. Oil is an essential commodity for every nation, and unstable markets affect all regardless of industrial might. The influence of OPEC was greatly felt when the organization had to make tough choices in efforts to safeguard member countries’ interests while at the time appear to be acting in a responsible manner in the wake of global economic turmoil. OPEC’s pricing strategy has faced criticism from non-OPEC producers such as Russia and China, industrial giants such as the U.S and struggling economies of the developing world, which face the greatest wrath of a worsening global economic environment. This focus on OPEC underscores its continued relevance and dominance in the global oil business. However, OPEC, just like all other players in international business, always faces difficult business choices that require a balance between risks, responsibility and interests of member countries. The task of maintaining stability and order in the oil market is a challenging one, particularly considering the influence of non-OPEC oil producers such as Russia and China, whose influence is often overlooked. OPEC’s future depends largely on the soundness of the investment choices that the cartel makes in order to improve its operations. The organization has to confront the challenges posed by international criticism, enormous capital requirements, changing environment policies and advancement in technology. The developments should be aimed at not just safeguarding the interests of OPEC member countries, but also oil consumers, through maintaining sustainability in both upstream and downstream supply measures. Works Cited Al-Khalaf, Najaf. “OPEC members and the new international economic order.” Journal of Energy Development, 2.2 (2010): 239-252. A new economic order may offset OPEC’s influence in international oil trade as third world countries shed off their colonial status. Fattouh, Bassam. OPEC Pricing Power: The Need for a New Perspective, London: Oxford Institute for Energy Studies, 2007. The article explains the various descriptions to refer to OPEC in response to the cartel’s changing behaviour different during different situations. Gately, Dermot. “A Ten-Year Retrospective: OPEC and the World Oil Market.” Journal of Economic Literature, 22.3 (1984): 1100-1114. Emphasis is on oil price quadrupling between 1973 and 1974. Griffin, James. “OPEC Behavior: A Test of Alternative Hypotheses.” The American Economic Review, 75.5 (1985): 954-963. Focus is on OPEC behavior and the findings of empirical studies that assess the pricing power the cartel has wielded since the 1980s. Hao, Li. “A Trilateral Trade Model with the Duopoly Feature: Experimental Simulation Analysis of State Welfare Based on World Oil Market” Journal of Finance and Economics, 7.3 (2009): 18-43. The paper introduces the duopoly dimension, whereby the role of OPEC and non-OPEC players in the world oil market are discussed. Hashim, John. “Future relationship among energy demand, OPEC, and the value of the dollar.” Journal of Energy Development, 6.1 (2009): 61-71. The paper highlights the future of OPEC in future international economy environment, particularly its role in the dollar’s strength, and global terms of crude oil trade. Hochman, Gal. OPEC, Gasoline Prices and the Optimal Export Tax Paradigm, Berkeley, CA: Energy Biosciences Institute, 2009. Hoffman blames the exploitative pricing strategies of oil ministers from OPEC member countries to lack of an Optimal Export Tax model. Höök, Mikael. “Giant oil field decline rates and their influence on world oil production,” Energy Policy, 37.6 (2009): 2262-2272. The role of the production capacity of giant oil fields is assessed with regard to its influence on OPEC’s operations. Ivanhoe, Loe. “Future world oil supplies: there is a finite limit,” World Oil, 3.6 (1995): 13- 76. Ivanhoe addresses the debate on OPEC’s restrictions on output, and the views expressed in studies on production decisions that are made with budgetary needs of domestic economies in mind. Kilian, Lutz. Not All Oil Price Shocks are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market, CEPR Discussion Paper No. 5994, 2006. The article explains the impact of OPEC in supply and demand trends that influence even the world’s biggest economy, the US. MacAvoy, Peter. Crude oil prices as determined by OPEC and market fundamentals, Cambridge, MA: Ballinger Publishing Co., 1982. The book explains major and minor determinants of crude oil prices, as well as the role of the OPEC cartel in perpetuating the oil price increases that took place throughout the 1970s and early 1980s. Ramcharran, Harri. “Oil production responses to price changes: an empirical application of the competitive model to OPEC and non-OPEC countries” Energy Economics, 24.2 (2002): 97-106. Overproduction by some OPEC member countries leads to falling of world crude oil prices. Sakbani, Macabbi. “Non-OPEC oil supply and implications for OPEC's control of the market.” Journal of Energy Development, 2.1 (2009): 76-85. This reference highlights the impact of non-OPEC oil suppliers on the measures adopted by OPEC member countries. Shaaf, Maine. “Strong dollar, low inflation, and OPEC's terms of trade.” Journal of Energy Development, 10.1 (2009): 121-128. The article highlights the role of dollar (strength and weakness) in OPEC’s influence in international trade during the eighties as well as today. Smith, James. “World Oil: Market or Mayhem?” The Journal of Economic Perspectives, 23.3 (2009): 145-164. Smith analyzes the volatility of oil prices experienced during the summer of 2008. Read More