OPEC

D : OPEC is a cartel that aims to manage the supply of oil in an effort to set the price of
oil on the world market, in order to avoid fluctuations that might affect the economies of
both producing and purchasing countries.
P : The purpose of OPEC for members is to "coordinate and unify the petroleum policies
of its Member Countries and ensure the stabilization of oil markets in order to secure an
efficient, economic and regular supply of petroleum to consumers, a steady income to
producers and a fair return on capital for those investing in the petroleum industry."
OPEC members collectively supply about 45% of the world's crude oil production.
Together, OPEC members control about 81% of the world's total proven crude reserves.
OPEC member countries monitor the market and decide collectively to raise or lower oil
production in order to maintain stable prices and supply.
A unanimous vote is required on raising or lowering oil production.
Each member country controls the oil production of its country, but OPEC aims to
coordinate the production policies of member countries.
Oil and energy ministers from OPEC member countries usually meet twice a year in
March and September to determine OPEC's output level. They also meet in extraordinary
sessions whenever required.
M:
The Organization of the Petroleum Exporting Countries (OPEC) was founded in
Baghdad, Iraq, with the signing of an agreement in September 1960 by five countries
namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. They were to
become the Founder Members of the Organization.
These countries were later joined by Qatar (1961), Indonesia (1962), Libya (1962), the
United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon
(1975) and Angola (2007).
From December 1992 until October 2007, Ecuador suspended its membership. Gabon
terminated its membership in 1995. Indonesia suspended its membership in January
2009, but this was reactivated from 1st January 2016.
This means that, currently, the Organization has a total of 13 Member Countries.
The OPEC Statute distinguishes between the Founder Members and Full Members those countries whose applications for membership have been accepted by the
Conference.
The Statute stipulates that any country with a substantial net export of crude petroleum,
which has fundamentally similar interests to those of Member Countries, may become a
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Full Member of the Organization, if accepted by a majority of three-fourths of Full

Members, including the concurring votes of all Founder Members.

Does OPEC control the oil market?

No, OPEC does not control the oil market. OPEC Member Countries produce about 41
per cent of the world's crude oil and 15 per cent of its natural gas.
However, OPEC's oil exports represent about 55 per cent of the oil traded internationally.
Therefore, OPEC can have a strong influence on the oil market, especially if it decides to
reduce or increase its level of production.
OPEC seeks stability in the oil market and endeavours to deliver steady supplies of oil to
consumers at fair and reasonable prices. The Organization has achieved this in a number
of ways: sometimes by voluntarily producing less oil, sometimes by producing more
when there is a shortfall in supplies (such as during the Gulf Crisis in 1990, when several
million barrels of oil per day were suddenly removed from the market).

Consumer and Producer Surplus

Consumer surplus
Consumer surplus is derived whenever the price a consumer actually pays is less than
they are prepared to pay. A demand curve indicates what price consumers are prepared to
pay for a hypothetical quantity of a good, based on their expectation of private benefit.
For example, at price P, the total private benefit in terms of utility derived by consumers
from consuming quantity, Q is shown as the area ABQC in the diagram.

The amount consumers actually spend is determined by the market price they pay, P, and
the quantity they buy, Q - namely, P x Q, or area PBQC. This means that there is a net
gain to the consumer, because area ABQC is greater that area PBQC. This net gain is
called consumer surplus, which is the total benefit, area ABQC, less the amount spent,
area PBQC. Hence ABQC - PBQC = area ABP.

Producer surplus
Producer surplus is the additional private benefit to producers, in terms of profit, gained
when the price they receive in the market is more than the minimum they would be
prepared to supply for. In other words they received a reward that more than covers their
costs of production.
The producer surplus derived by all firms in the market is the area from the supply curve
to the price line, EPB

BROKEN MONOPOLY

The following diagram assumes that average cost is constant, and equal to marginal cost
(ATC = MC).Under perfect competition, equilibrium price and output is at P and Q. If the
market is controlled by a single firm, equilibrium for the firm is where MC = MR, at P1
and Q1. Under perfect competition, the area representing economic welfare is P, F and A,
but under monopoly the area of welfare is P, F, C, B. Therefore, the deadweight loss is the
area B, C, A.