Explore Economics Economics Search. Explore Blog Reference library Collections Shop. Cartels and Game Theory in the Oil Industry. Ben Christopher 30th October Share: Facebook Twitter Email Print page. Proof of this is the defections of Ecuador and Gabon which both suspended their membership in OPEC for periods of time and respectively seeking a release form the terms of the cartel.
Both sought to increase their production levels free from quotas. Each member of OPEC has its own political and economic conditions that are unique to it. The combination of all these problems make coordination difficult as the interests on one country may run contrary to another or the organization itself.
Cartels are normally considered to be a negative aspect of a market, they discourage competition, restrict supply and raise prices for consumers. While there are different grades of crude oil, when crude hits the market it is essentially the same and they are all sold for more or less the same price.
Some crude is more expensive to refine for market sale such as Canadian crude from the Alberta oil sands and some is cheaper however, the grade makes it to the market is undifferentiated from different crude of different origins.
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Investopedia does not include all offers available in the marketplace. Related Articles. Oil OPEC vs. Partner Links. Read about petrodollar recycling and the history of the petrodollar. What Is Shale Oil? Shale oil is a type of oil found in shale rock formations that must be hydraulically fractured to extract. Read about the pros and cons of shale oil. Cartel A cartel is an organization created between a group of producers of a good or service to regulate supply in order to manipulate prices.
What Is Peak Oil? Peak oil refers to a hypothetical point at which global crude oil production will hit its maximum rate, after which production will start to decline. Normally in a competitive market, oligopoly needs to concern themselves with supply and demand along with competition.
Cartels are formed within an oligopoly work together by fixing the prices, quantities, locate markets geographically or engage in any combinations of these non-competitive market behaviors. OPEC has engaged in all of these behaviors at one time or another. OPEC supplies the U. The U. This is fine by OPEC standards as long as they are not in jeopardy of being replaced, thus still supporting the U.
Who policies all of this? Saudi Arabia does. For this cartel, OPEC relies on Saudi Arabia to punish those nations that deviate from their quotas by lowering the price or raising the price of crude oil that offending nation is purchasing from OPEC is buying their crude oil for.
Once the supply accompanied these conflicts, oil prices began to slide dramatically. However, the next year on September 11, attacks against the U. Indonesia withdrew from OPEC to protect its oil supply. November 17, , global oil prices responded strongly as OPEC members spoke openly about converting their cash reserves to the Euro and away from U. As this paper has shown you by definitions and examples, OPEC is a very successful oligopoly and cartel. This llows the other nations to feel the tiny bit of freedom to explore their own crude oil while still fixing both quantity and price of crude oil.
Although people may misunderstand OPEC as aggressive producers, without OPEC the promotion to create some sort of organization alike to it, would be in deep interest of industrial improvements.
Keefe, B.
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