OPEC is an example of an Oligopoly with regards to its market structure. This means there are few sellers in the market, the product is either homogeneous, or differentiated and there is difficult market entry. With regards to OPEC, this means that there are not many countries who sell oil, all the oil is identical meaning that it is a homogeneous product. For example, the oil sold by Saudi Arabia is identical to the oil from Iran. Finally, formidable barriers to entry prote

To achieve this objective, OPEC has a strong influence on supply. In recent years, poor forecasting has put the cartel on the brink of collapse. In 1997, OPEC, influenced by Saudi Arabia, decided to raise oil production just as Southeast Asia was heading towards an economic crisis. As OPEC increased the supply of oil, much of Southeast Asia reduced manufacturing, thus decreasing its need for oil. OPEC was left with a big surplus and had to lower prices to sell excess supply. The price of oil fell to $10 per barrel.

The cartel is only effective if all the producers are a part of it, and each producer sticks to its production quota. Like with any type of market structure there can be problems. In this case, if a firms quota does not maximize profit, the firm might cheat on production. Also, the outside producers do not have a quota. Finally, increase production will push market prices down and lower industry profits.

For the first time in two years, in January 2001, OPEC announced a 1.5 million barrel a day cut in crude oil production. The decline in oil prices in the late 1990s rattled OPEC members, and OPEC decided a cut was necessary to prevent a significant fall or rise in the price of oil. Due to a slowdown in the US economy in late 2000, US officials worried that a production cut could raise prices a lot and move the co

Some topics in this essay:
Iran Finally, OPEC OPEC, Southeast Asia, Austria September, Conference Ministers, Arab Emirates, Exporting Countries, Oman Russia, Arabia Venezuela, Saudi Arabia, price oil, saudi arabia, 2001 opec, production quota, barrels day, non-opec producers, oil exports, market price, oil opec, total industry,