1. OPEC Corey Merrill Kelsy Aston Chad Lunt Kelso Larsen So-Young Lee

2. Outline  Background Information – Corey  Current Situation – Kelsy  International Aspects – So-Young  Special Concerns – Chad  Future of OPEC - Kelso

3. Current Situation Background Information

4. What is OPEC?  Organization of Petroleum Exporting Countries  Permanent inter-governmental organization  11 oil producing and exporting countries throughout Africa and Asia  For these countries oil is the key to development  OPEC was formed at a meeting held on September 14, 1960 in Baghdad, Iraq, by five Founder Members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela

5. Purpose  OPEC’s mission is to coordinate & unify the petroleum policies of Member Countries & ensure the stabilization of oil prices in order to secure an efficient, economic & regular supply of petroleum to consumers, a steady income to producers & a fair return on capital to those investing in the petroleum industry

6. Impacts of OPEC  OPEC does not control the oil market  OPEC did in fact set crude oil prices from the early 1970s to the mid-1980s, this is no longer the case  Member Countries produce about 40% of the world's crude oil and 15% of its natural gas  Exports represent about 55% of the crude oil traded internationally  OPEC's oil reserves are sufficient to last more than 80 years, while non-OPEC oil producers' reserves might last less than 30 years

7. Current Situation

8. President of OPEC  Edmund Daukoru  From Bayelsa, an oil rich state in Nigeria  Was a geologist  Developed a career with Shell

9. OPEC  11 members- Nigeria, Algeria, Libya, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, United Arab Emirates, Venezuela, and Indonesia  41.7% of the world’s oil production comes from OPEC  U.S. dollar is the unit of oil sales  English is the official language

11. OPEC Conferences  Meets every March & September  Unify policies to promote stability and harmony in oil market  Fundamentals are current market situations and forecasts i.e. current growth and supply & demand  New member applications are discussed  Budgets are decided upon  Recommendations and reports are submitted

12. Goal  Have stability in the market  Deliver steady supply of oil to consumers  Get oil to people at reasonable and fair prices  To obtain these goals, OPEC voluntarily produces less oil

13. The Current Market  President Daukoru says “The market is clearly oversupplied.”  Concerned with falling oil prices –July prices $78 a barrel –Current prices between $57-$61  OPEC decided to cut oil production output

14. Current Situation International Aspects

15.  Function - Representatives of OPEC Member Countries (Heads of Delegation) meet at the OPEC Conference to co- ordinate and unify their petroleum policies in order to promote stability and harmony in the oil market.  Supported in this by the OPEC Secretariat, directed by the Board of Governors and run by the Secretary General, and by various bodies including the Economic Commission and the Ministerial Monitoring Committee.  Consider the current situation and forecasts of market fundamentals, such as economic growth rates and petroleum demand and supply scenarios. They then consider what, if any, changes they might make in their petroleum policies. http://www.opec.org/library/FAQs/aboutOPEC/q4.htm

16. International Aspects  How has it interacted with organizational clients to help solve problems?  OPEC sets oil production quotas - stability and harmony in the petroleum market (e.g. If demand ↑, or some oil producers are producing less oil, OPEC can increase its oil production, in order to prevent a sudden rise in prices. OPEC might also reduce its oil production in response to market conditions, as a means of countering falling price)  OPEC controls the oil market - OPEC does not directly control the oil market, however, OPEC can have a strong influence on the oil market, especially if it decides to reduce or increase its level of supply.  OPEC oil production affects oil prices - Non-OPEC producers can actively support the Organization ’ s measures, since this will make OPEC ’ s decisions more effective and to everyone ’ s benefit. There are many factors that influence the prices paid by end consumers for oil products. OPEC: Public Relations & Information Department, February 2005

17. International Aspects  OPEC influences world trade - The OPEC Member Countries established the OPEC Fund for Inter-national Development in January 1976, in order to promote cooperation between OPEC Member Countries and other developing states, and to particularly help poorer, low-income countries in pursuit of their social and economic advancement.  OPEC supports environmental policies - OPEC is concerned about the environment and wants to ensure that it is clean and healthy for future generations. OPEC also supports sustainable economic development, which requires steady supplies of energy at reasonable prices.  OPEC guarantees security of oil supply- OPEC recognizes the need for massive investment in exploration, drilling, pipelines and other oil related infrastructure and its Member Countries are investing to ensure continuous supply to fuel the engine of world economic growth: consistency, transparency and certainty within the international oil community OPEC: Public Relations & Information Department, February 2005

18. Current Situation Special Concerns

19.  Political Instability  Slowing Demand Growth  Rebounding Non-OPEC Supply  High Stock Levels

20. Political Instability

21. Iran  March 2003: IAEA discovers Iran’s Nuclear enrichment facility.  “Fully Nuclear”  Anti-Israel Sentiment –Ariel Sharon commands Israeli troops to prepare for war against nuclear Iran. ( http://www.timesonline.co.uk/article/0,,2089-1920074,00.html)

22. Iraq  Continued conflict  Impending civil war  Ownership of energy resources

23. Nigeria  Nigerian Delta Insurgents (MEND: Movement for the Emancipation of the Nigerian Delta)  Constant harrasment to foreign oil workers.  Oil rich states wish to secede. Obasanjo

24. Slowing Demand Growth  2006: the demand for OPEC crude is expected to average 28.7 mb/d, representing a downward revision of 0.2 mb/d  2007: the demand for OPEC crude is expected to average 28.1 mb/d, representing a decline of 0.6 mb/d versus 2006

25. Rebounding Non-OPEC Supply  North America (Canada) filling in supply.  Oil rich portions of Africa coming “online.”

26. High Stock Levels  Lack of cooperation  Poor communication

27. Current Situation Future of OPEC

28.  Dynamics-as-Usual (DAU)  Protracted Market Tightness (PMT)  Prolonged Soft Market (PSM)

31. DAU Assumptions  Average growth rates of last 15 years  Oil demand increases annually by 1.5 mbd  75% of increase from developing countries  Transportation sector accounts for ½ of increase

32. Future Demand Factors  Health of World Economy  Consuming Countries’ Policies  Technological Developments –Transportation Sector –Oil Production  Non-OPEC Supply  Quality Issues

33. OPEC Strategy  Price Stability  Downstream Bottlenecks  Technology & Environment  Trade Barriers  Increased Cohesion