Has OPEC been a Successful Cartel?
A cartel is an organisation of producers grouped together for their own benefit. The most well known cartel in existence today is OPEC, Organisation of Petroleum Exporting Countries. Its members are some (but not all) of the most important oil producing countries including Saudi Arabia and Mexico. Most cartels try to raise prices at the expense of consumers.
The aim of this essay is to determine whether OPEC has been a successful cartel, this will mean I have to examine the strengths and weaknesses of OPEC which have been present throughout their existence of supplying oil. This should allow me to make an appropriate judgement on whether OPEC has been a successful Cartel.
The history of oil prices can give me important information on how well OPEC has managed to control prices:
Year Crude oil prices, $ per barrel
1970 3
1975 13
1980 35
1985 27
1990 17
2000 14
The brief history of oil prices show that oil was cheap in the 1950s and 60s. This was due to supply growing faster than demand. The early 1970 's saw a reversal of this trend, as demand increased faster than supply. This was mainly due to the world economy booming.
Source: adapted from BP statistical review
In November 1973, politics in the Middle East was to have a great effect on oil prices. With an existing tight market, the result was am explosion in the price of oil.
The war was soon over but its economic downturn effect was not lost on OPEC. OPEC, whose members at the time supplied over 60% of world demand for oil, organised a system of quotas amongst themselves, fixing limits on how much each member could produce. By slightly cutting back on pre-1973 production levels, they were able to increase the average price of oil to around $13 (as shown in the table above).
Price S2 As this demand and supply diagram
S1 shows, as Supply decreases from S1 to
S2, Price increases from P1 to P2. This
P2 explains how OPEC managed to increase
average prices of oil to $13 by cutting
P1 back on supply.
The aim of this essay is to determine whether OPEC has been a successful cartel, this will mean I have to examine the strengths and weaknesses of OPEC which have been present throughout their existence of supplying oil. This should allow me to make an appropriate judgement on whether OPEC has been a successful Cartel.
The history of oil prices can give me important information on how well OPEC has managed to control prices:
Year Crude oil prices, $ per barrel
1970 3
1975 13
1980 35
1985 27
1990 17
2000 14
The brief history of oil prices show that oil was cheap in the 1950s and 60s. This was due to supply growing faster than demand. The early 1970 's saw a reversal of this trend, as demand increased faster than supply. This was mainly due to the world economy booming.
Source: adapted from BP statistical review
In November 1973, politics in the Middle East was to have a great effect on oil prices. With an existing tight market, the result was am explosion in the price of oil.
The war was soon over but its economic downturn effect was not lost on OPEC. OPEC, whose members at the time supplied over 60% of world demand for oil, organised a system of quotas amongst themselves, fixing limits on how much each member could produce. By slightly cutting back on pre-1973 production levels, they were able to increase the average price of oil to around $13 (as shown in the table above).
Price S2 As this demand and supply diagram
S1 shows, as Supply decreases from S1 to
S2, Price increases from P1 to P2. This
P2 explains how OPEC managed to increase
average prices of oil to $13 by cutting
P1 back on supply.