QS Study

Functions of Organization of petroleum Exporting countries (OPEC)

OPEC member countries produce about 40.1 percent of World’s crude Oil and 16.1 percent of its natural gas. Sometimes OPEC Policies Work Sometime they don’t. In 1999 OPEC met and established strict production quota to try to raise prices. It seemed to work so well that by the third quarter of the year prices had nearly doubled and prices remained within OPEC’S target band until the terrorist attacks of September 11, 2001.

Keeping Oil prices high has some downside for OPEC. Competition from non OPEC countries increases because the revenues accruing to the competitions are higher. Because some OPEC countries are putting up roadblocks to the production. Major Producers like BP, Exxon Mobil and shell are investing heaving in areas like the Caspian Basin the Gulf of Mexico and Angola and are trying to enter into the areas like the Russian Federation. Productions in these areas are expected to grow twice as fast as in the 1900’s and this growth should continue until 2010.

Another Problem is that higher Oil prices could depress growth worldwide and thus lower demand for Oil.

Because commodities are the raw material used in the production process. It is important for managers of companies that use commodities to underhand the factors that influence their prices. During the Asian financial crisis, when commodity prices collapsed, commodity exporters suffered but commodity benefited from the lower commodity cost.

Because of OPEC’s power for the most countries have been able to avoid competitive pressure to improve their industries and some are therefore, decades out of date.

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