PETROLEUM ECONOMICS

2015

PETROLEUM ECONOMICS
2015

OPEC:
Organisation of Petroleum Exporting Countries
OPECs principal aims are the coordination and unification
of the petroleum policies of its Member Countries and the
determination of the best means for safeguarding their
interests, individually and collectively. The Organization also
seeks to devise ways and means of ensuring:
the stabilisation of prices in international oil markets with a view to
eliminating harmful and unnecessary fluctuations, due regard
being given at all times to the interests of oil producing nations
and to the necessity of securing a steady income for them;
an efficient, economic and regular supply of petroleum to
consuming nations; and a fair return on their
capital to those investing in the petroleum industry.

PETROLEUM ECONOMICS
2015

OPEC
The first move towards the establishment of the Organization of
the Petroleum Exporting Countries (OPEC) took place in 1949,
when Venezuela approached Iran, Iraq, Kuwait and Saudi Arabia
and suggested they exchange views and explore avenues for
regular and closer communications between them.
The need for closer cooperation became more apparent in 1959
when the international oil companies unilaterally reduced the
posted price for Venezuelan crude by 5 and 25 per barrel, and
that for Middle Eastern crude by 18 per barrel.
It then set up the general agreement on the establishment of an
Oil Consultation Commission. In August 1960, the oil
companies further reduced the posted prices for Middle East
crude by between 10 and 14 per barrel.

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2015

OPEC
As a result, the First Arab Petroleum Congress, held in Cairo,
adopted a resolution calling on oil companies to consult with the
governments of the producing countries before unilaterally taking
any decision on oil prices.
In September 1960, the Government of Iraq invited Iran, Kuwait,
Saudi Arabia and Venezuela to a meeting in Baghdad to discuss
the reduction in prices of the crudes produced by their
respective countries.
Following this, a conference was held 1014 September 1960 in
Baghdad, which was attended by representatives of these five
governments. It was this First Conference which established
OPEC as a permanent intergovernmental organization.

PETROLEUM ECONOMICS
2015

OPEC
OPEC rose to international prominence during the 1970s, as its
Member Countries took control of their domestic petroleum
industries and acquired a major say in the pricing of crude oil on
world markets. On two occasions, oil prices rose steeply in a
volatile market, triggered by the Arab oil embargo in 1973 and
the outbreak of the Iranian Revolution in 1979.
After reaching record levels early in the 1980s, prices began to
weaken, before crashing in 1986, responding to a big oil glut and
consumer shift away from this hydrocarbon. OPECs share of the
smaller oil market fell heavily and its total petroleum revenue
dropped below a third of earlier peaks, causing severe economic
hardship for many Member Countries.
Prices rallied in the final part of the 1980ies, but to around half
the levels of the early part, and OPECs share of newly growing
world output began to recover.

PETROLEUM ECONOMICS
2015

OPEC
This was supported by OPEC introducing a group production
ceiling divided among Member Countries and a Reference Basket
for pricing (quotas, or in official OPEC language, production
allocation). OPEC is reluctant to disclose current quotas, on their
home page the latest are from 2007.
Prices moved less dramatically in the 1990s than in the 1970s
and 1980s, and timely OPEC action reduced the market impact
of Middle East hostilities in 199091. But excessive volatility and
general price weakness dominated the decade, and the SouthEast Asian economic downturn and mild Northern Hemisphere
winter of 199899 saw prices back at 1986 levels
However, a solid recovery followed in a more integrated oil market,
which was adjusting to the post-Soviet world, greater regionalism,
globalisation, the communications revolution and other high-tech
trends. Breakthroughs in producer-consumer dialogue matched
continued advances in OPEC/non-OPEC relations

PETROLEUM ECONOMICS
2015

PETROLEUM ECONOMICS
2015

Saudi Arabia as Swing Producer

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2015

OPEC
After 2000, an innovative OPEC oil price band mechanism helped
strengthen and stabilize crude prices in the early years of the
decade. But a combination of market forces, speculation and other
factors transformed the situation in 2004, pushing up prices and
increasing volatility in a well-supplied crude market. Oil was used
increasingly as an asset class.
Prices soared to record levels in mid-2008, before collapsing in
the emerging global financial turmoil and economic recession.
OPEC became prominent in supporting the oil sector, as part of
global efforts to address the economic crisis.
OPECs second and third summits in Caracas and Riyadh in 2000
and 2007 established stable energy markets, sustainable
development and the environment as three guiding themes,

PETROLEUM ECONOMICS
2015

OPEC Anniversary 2010

Six achievements highlighted for the
50th Anniversary:
1 Secure and steady supply of oil
2 Fifty years old a success in itself
3 Sustainable development
4 OPEC and the environment
5 Encouraging dialogue and cooperation
6 Strengthening of national oil companies

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2015

OPEC
The following is from the minutes for the meeting in
December 2012:
Since it is vital to remain vigilant in the face of the uncertainty
surrounding the outlook for the worlds major economies, as well as
the implications of the enduring weaknesses in the international
financial system that are expected to continue to pose downside
risks for both the global economy and the oil market,
the Conference directed the Secretariat to maintain its close
monitoring of developments in supply and demand, as well as
non-fundamental factors, such as macroeconomic sentiment and
speculative activity, keeping Member Countries abreast of
developments at all times.

PETROLEUM ECONOMICS
2015

PETROLEUM ECONOMICS
2015

OPEC

Gabon and Indonesia have left OPEC

PETROLEUM ECONOMICS
2015

OPEC
OPEC produced 41.5 percent of the world's oil in 2010.
The major OPEC producers are (2010),
Saudi Arabia
10.0 MMbbl/day
Iran
4.3
UAE
2.8
Kuwait
2.5
Iraq
2.5
Nigeria
2.4
Price: The OPEC Reference Basket (ORB), also referred
to as the OPEC Basket is a weighted average of prices
for petroleum blends produced by OPEC countries. It is
used as an important benchmark for crude oil prices.

PETROLEUM ECONOMICS
2015

OPEC

PETROLEUM ECONOMICS
2015

The OPEC Reference Basket (ORB)

Saharan Blend (from Algeria)
Ecuador
Iran Heavy (from Islamic Republic of Iran)
Basra Light (from Iraq)
Kuwait Export (from Kuwait)
Es Sider (from Libya)
Bonny Light (from Nigeria)
Qatar Marine (from Qatar)
Arab Light (from Saudi Arabia)
Murban (from UAE)
BCF 17 (from Venezuela)

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2015

Reference crudes
Which have we ?
OPEC Basket
Texas intermediate
Brent blend

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2015

Reference crudes
What are the differences in price due to ?
Quality:
Gravity, hydrocarbons, paraffin, heavy metals,.
Light crude: more gasoline => higher value
Paraffin wax: bad for refineries => lower value
A light crude with cyclic hydrocarbons is more worth
than a light crude with linear hydrocarbons
Distance to markets
Cost of transportation determines price CIF
e.g. CIF Rotterdam (NL)

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2015

Who gets what from a litre of oil ? (2010)

PETROLEUM ECONOMICS
2015

OPEC Secretary-General, Abdullah al-Badri. Not content with the split

between the OPEC countries and the consuming countries

PETROLEUM ECONOMICS
2015

OPEC meeting 27 November 2014

Recording its concern over the rapid decline in oil
prices in recent months, the Conference concurred
that stable oil prices at a level which did not affect
global economic growth but which,
at the same time, allowed producers to receive a
decent income and to invest to meet future demand
were vital for world economic wellbeing.

PETROLEUM ECONOMICS
2015

OPEC meeting 27 November 2014

Accordingly, in the interest of restoring market
equilibrium, the Conference decided to maintain the
production level of 30.0 mb/d, as was agreed in
December 2011.
As always, in taking this decision, Member Countries
confirmed their readiness to respond to developments
which could have an adverse impact on the
maintenance of an orderly and balanced oil market.

PETROLEUM ECONOMICS
2015

OPEC meeting 27 November 2014

Accordingly, in the interest of restoring market
equilibrium, the Conference decided to maintain the
production level of 30.0 mb/d, as was agreed in
December 2011.
As always, in adverse impact on the maintenance of
an orderly and balanced oil market. taking this
decision, Member Countries confirmed their readiness
to respond to developments which could have an
Forecast world oil production: 92 mb/d