Global Trade And The Opec - Essay Example

World spare capacity fell below 1.5 mbd - the biggest since 1976. Looking ahead, crude oil will probably stay as a primary source of energy in and beyond the next three decades necessitating large upfront investments. Likewise, traditional non-OPEC production is expected to reach its zenith in 2010 due to depletion of current fields and net declines in proven reserves. As such, a substantial quantity of the incremental capacity will have to come from OPEC which today controls around 80% of proven oil reserves.

OPEC stands for Organization of the Petroleum Exporting Countries, a stable inter-governmental association composed presently of eleven oil generating and exporting nations from across three continents (America, Asia and Africa). The member countries are Algeria, Indonesia, the Islamic Republic of Iran, Iraq, Kuwait, the Socialist People's Libyan Arab Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates & Venezuela. These nations have an aggregate population of about 545 million and oil is the most important commodity and foreign exchange earner.

Therefore, for these countries, oil is the chief element for development - social, political and economic. The income derived from oil is used not only to spread out and inflate their economic and industrial base, it is also utilized to provide their people with jobs, education, health care and a decent standard of living. Primary objectives of the organization include:* the synchronization and bringing together of petroleum policies of member countries and ascertaining the most logical means for protecting their individual and collective interests;*the search for judicious methods to guarantee the stabilization of prices in global oil markets with the view to reduce and eventually do away with destructive and unnecessary fluctuations; and *the need to give an efficient economic and consistent supply of petroleum to consuming countries and a reasonable return of investment to those infusing capital in the petroleum industry.

OPEC sets oil production quotas. For one, its Statute requires that it pursues stability and harmony in the petroleum market for the benefit of oil producers and consumers. In response to this, member countries take action on market fundamentals and forecast developments by organizing well and managing prudently their petroleum policies. One simple and probable response is production regulation. If demand increases, or some producers are producing less than what it is expected of them, OPEC can increase its oil production so as to prevent a drastic change/rise in prices.

OPEC can also slow down on its production in response to market conditions. Does OPEC control the oil market or does it have the capacity to control the market and influence oil prices Member countries produce about 43% of the world's crude oil and 18% of its natural gas. However, in addition to that, OPEC's oil exports also represent about 51% of the crude oil traded worldwide. Hence, OPEC has a strong influence on the oil market, especially if it decides to reduce or increase its level of production.

Crude Oil and Gasoline PricesSeveral significant components trigger and eventually cause the retail price of gasoline to change over different periods of time. First, price of gasoline strongly