Managerial Economics

IBS ,MUMBAI

Set up in 1960 Principal Aim- 'coordination & unification of petroleum policies of member countries & the determination of the best means for safeguarding their interests, individually & collectively 40% of the world's crude oil production Exports represent 55% of the crude oil traded internationally

Before 1970
During 1970
No major role played by OPEC countries Power of price setting shifted from MNC oil

1975-1985

companies to OPEC By 1973 OPEC countries changed the pricing system

Oil production increased from 48% to 71% Survival became Uncertain Market share fell from 52% to 30% in 1985

Mid-1980

Quota set by OPEC

Production ceiling set up was violated 1985-Oil prices dropped from $28 to $12

1990s- $30 per barrel

1993- $15 per barrel

Pricing data collected March 2000 Set a Price Band mechanism in the range of $22-$28 per barrel Production adjustments on basket price Jan 2005 suspended price band mechanism
Market was tight in its price band

Unable to defend by cutting its production

Price being affected due to speculation Fluctuation due to changes in quota decisions 1980- OPEC made a mistake by increasing oil prices to $40 / barrel
Reduction in demand reduction in prices

Problem with cartel

Maintaining the right price
Allocate sales among OPEC countries

Growth expectation in 2008-2009

OPEC produced 28-29mbpd in 1971 Still producing the same amount Prices rocketing due to surging demand In 2008 oil ministers declined to increase production. Extraction costs $1.50 pb. PB price $100 OPEC maintained that surging prices were due to Hedging and mere Speculation

 Nikesh Jain
Komal Naik Krisha Bhagat

Sakshi Rastogi
Somil Shah Prashasti Tandon