UGANDA CHRISTIAN UNIVERSITY, MUKONOSTUDENT REGISTRATION NO. : RM 18M 23/314INSTITUTE : INSTITUTE OF PETROLEUM STUDIES,KAMPALAMODULE : INTRODUCTION TO OIL AND GASSUPERVISOR : PATRICK RUHARUZADATE : 23.03.2019TITLE OF THE RESEARCH TOPIC : CAN OPEC REALISTICALLY MEET ITS STATED OBJECTIVES OF STABILIZING OIL PRICES IN THE INTERNATIONAL MARKETS?TABLE OF CONTENTS TOC o “1-Three” f h z u CHAPTER ONE PAGEREF _Toc5063261 h 11.1 Introduction PAGEREF _Toc5063262 h 11.2 Historical past and Goals of OPEC PAGEREF _Toc5063263 h 11.Three What does OPEC do? PAGEREF _Toc5063264 h 2CHAPTER TWO PAGEREF _Toc5063265 h 32.1 The 2008 Oil Worth Disaster PAGEREF _Toc5063266 h 32.
2 OPEC’s function through the oil value disaster 2008 to 2009 PAGEREF _Toc5063267 h 3CHAPTER THREE PAGEREF _Toc5063268 h 43.1 The World dynamics within the Oil and Fuel trade? PAGEREF _Toc5063269 h 43.1.1 Results of Geopolitics on OPEC. PAGEREF _Toc5063270 h 43.1.2 The problem of Alternate options PAGEREF _Toc5063271 h 43.1.Three The Shale oil issue PAGEREF _Toc5063272 h 53.1.four Pure fuel PAGEREF _Toc5063273 h 63.1.5 The robust U.S Greenback impact PAGEREF _Toc5063274 h 63.2 Diminishing affect of OPEC PAGEREF _Toc5063275 h 73.Three Trying to the long run PAGEREF _Toc5063276 h 93.
four OPEC affect on international oil costs PAGEREF _Toc5063277 h 10CHAPTER FOUR PAGEREF _Toc5063278 h 124.1 Suggestions and Conclusions PAGEREF _Toc5063279 h 12BIBLIOGRAPHY PAGEREF _Toc5063280 h 13CHAPTER ONE1.1 IntroductionIn 2008 costs of oil dropped considerably which was following the world monetary disaster often known as the Recession. The Economies of the world practically got here to a standstill and so the oil calls for declined. To understand the targets, OPEC tried to alter the dangerous scenario by controlling the provision and demand of crude oil and thereafter, the oil costs stabilized by 2009. This paper tries to look at whether or not altering market setting, OPEC can nonetheless realistically meet its said targets. It additional assesses different components that have an effect on the oil market on the earth. The findings point out that although OPEC has an affect in shaping the world oil market, the long run seems completely different because of many components inclusive of recent applied sciences and geopolitics.1.2 Historical past and Goals of OPECOn September 10-14, 1960 in Iraq, 5 OPEC (Group of Petroleum Exporting Nations) nations founding members allied to control the provision of oil and held its first assembly. These have been Iraq, Iran, Saudi Arabia, Kuwait, and Venezuela.It’s a everlasting intergovernmental group, created by the mentioned nations with the headquarters in Geneva Switzerland with targets; coordinating and unifying the petroleum insurance policies of the Member Nations and to find out one of the best means for safeguarding their particular person and collective pursuits; in search of methods and technique of making certain the stabilization of costs in worldwide oil markets, with a view to eliminating dangerous and pointless fluctuations; andproviding an environment friendly financial and common provide of petroleum to consuming nations and a good return on capital to these investing within the petroleum trade. In October 1973, the Group of Arab Petroleum Exporting Nations (AOPEC) consisting of the Arab Majority of OPEC plus Egypt and Syria declared important manufacturing prices and an oil embargo in opposition to the usand nations that supported Israel within the Yom Kipper Battle.OPEC at present has 14 Members together with Angola, Algeria, Ecuador, Equatorial Guinea, Gabon, Libya, Nigeria, Qatar, United Arab Emirates, and the Democratic Republic of Congo which account for practically 45% of worldwide manufacturing and over 70% of confirmed international oil reserves making its choices a significant factor of world oil costs. Within the 1970s OPEC’s impression was excessive as its members gained authority over their inner petroleum trade and began influencing international crude oil costs. The Arab Oil embargo in 1973 and the Iranian Decision in 1979 elevated the oil worth. In 1976 OPEC Fund for Worldwide Growth was established. After hitting a excessive document within the early 1980s oil costs began declining in 1986 because of oversupply and buyer shift in direction of renewable power.Within the early 2000s, OPEC established a “Worth-bond” mechanism that helped the stabilization of the value of crude oil. Costs saved rising and escalated in 2008.1.Three What does OPEC do?When OPEC desires to extend the value of crude oil it simply reduces manufacturing. When oil manufacturing drops, fuel corporations get shaken. A easy risk of oil reductions increase crude oil costs on the world market.CHAPTER TWO2.1 The 2008 Oil Worth CrisisThe decline of oil costs in 2008 helped following Monetary Disaster globally. World financial system shrunk and so was the demand for oil.Oil costs dropped from $ 144.29 in July to $ 33.87. OPEC lowered manufacturing by 16% in Eight months to tug down stability underneath the command of Saudi Arabia the most important producer. Crude oil manufacturing and consumption dropped by 1.5% and 1.2% respectively earlier than returning to parity from 2008 to 2010. US producers lowered on drilling operatives till costs began to develop and moved, switching from typical drilling to horizontal drilling. At one time oil went from $30 per barrel vary from December 2008 to April 2009 when it took 126 days for WTI costs to go from $ 33.87 on December 19, 2008, to $ 51.55 on April 24, 2009As OPEC minimize down manufacturing by 202 million barrels a day in an effort to cut back the provision, growing demand and therefore costs.2.2 OPEC’s function through the oil value disaster 2008 to 2009OPEC function helped within the restoration of the crude oil costs. The Cartel elected to lower crude oil manufacturing in a collection of 4 making certain manufacturing cuts that started within the fourth quarter of 2008 to early 2009. It introduced manufacturing cuts of four.2 mm bpd and carried out 2.zero mm bpd in precise crude manufacturing cuts. It maintained this manufacturing degree in 2009 and costs bounced again in late 2009.CHAPTER THREE3.1 The World dynamics within the Oil and Fuel trade?Three.1.1 Results of Geopolitics on OPEC.Non-OPEC oil producing nations have lengthy criticized OPEC’s energy to extend oil costs. Its affect is weakening as U.S oil manufacturing has elevated and different energies have been produced. OPEC’s affect has been challenged together with divisions be it political as being influenced by different nations or financial both in their very own nations or by exterior influences inside its membership. The approaching of the USA as a significant oil exporter and world adjustments to cleaner power sources along with the dangerous relations between USA and Saudi Arabia are prone to have an effect on the OPEC within the close to future.OPEC’s powers have fought amongst themselves as effectively. Regional energy struggles, variations in opinions, on technique and goal costs with elevated budgets in some wealthy member states have raised oil value or the value at which they continue to be solvent.Struggles amongst OPEC members grew into conflicts, as an example, Iraq and Iran waged on an Eight-year warfare. Sovereignty and Nationwide survival and never simply the value of oil have been at stake. The invasion eliminated about 4 Million barrels of oil from the world market and prompted a value improve.Three.1.2 The problem of Alternate options Unconventional oils comparable to Shale and sand primarily based oil extraction leased energies because of latest applied sciences have helped ramp up output. Most OPEC members view excessive oil costs as quick time period. The income makes importing nations to make investments in different gas sources. In 2009 USA crude oil manufacturing, shale, and sand-based oil extraction helped improve output. OPEC to counter this started to cope with Russia and different principal exporters to make a joint strategy that features coordinating manufacturing, drafting a brand new, shared constitution and known as for the potential for a brand new “OPEC+” group. This has opened a brand new chapter in OPEC’s historical past resulting in some criticisms that OPEC may not be free to alter course with out Russian buy-in. It has prompted pressure for USA Allies within the Cartel who now compete for calls for from Moscow and Washington.The manufacture of electrical autos operating on renewable power represents an enormous risk to OPEC. Rising fossil gas prices and Authorities subsidies for renewable power have attracted investments within the sector. Local weather change considerations are prone to have an effect on OPEC. OPEC acknowledged clear power as a challenger. The shale revolution has equally challenged OPEC that made it react to the hydraulic fracturing expertise by driving costs down. OPEC assumed that shale manufacturing would not be economically viable. Know-how has attracted American producers to invest-in beforehand untapped oil at reducing price, main the usto develop into the main producer of oil. The manufacturing output because it will increase reduces the management of OPEC Nations management and this could have an effect on the demand and provide within the oil market. Completely different geopolitical pursuits in OPEC’s members have lowered belief inside the group which makes it not easy to implement collective mutually helpful choices. Three.1.Three The Shale oil factorU.S shale manufacturing has elevated vastly due to elevated effectivity, operational price cuts and bettering expertise. Common manufacturing prices have fallen by 30/40% for U.S shale wells, in contrast with simply 10% to 12% elsewhere. 60% of shale world oil is believed as commercially viable at $60 per barrel, solely 20% of typical deep-water oil manufacturing is. The shale oil has confirmed far more versatile because of its quick drilling cycle. It doesn’t want a big preliminary capital enter to rapidly get well when costs rise. With a very good fiscal regime and easing environmental legal guidelines, the usshale oil trade will get an additional improvement. With expertise, the manufacturing of Shale oil is a good achievement for the worldwide oil disaster as a result of it’s comparatively low-cost unconventional assets and could be unfold all worldwide to handle the worldwide power drawback. Crude oil is taken into account a non-renewable power supply and could also be finite in the long term. The oil consumption price is to sooner than its era price since in view of how it’s shaped and renewable power is checked out as one of the best different supply.Three.1.four Pure fuel Pure fuel is an alternative to oil in some power purposes a lot as it’s not international in actual sense however could impact crude oil demand, provide and value. In 2012, the USA grew to become the world’s largest producer of hydrocarbons, reclaiming a rank it had 60-70 years in the past and has remained there.Three.1.5 The robust U.S Greenback impact This was the principle driver for the value decline of crude oil in 2015. The greenback appreciated in opposition to the Euro resulting in the appreciation within the index and a decline in oil costs, China’s dAssessment of its forex prompted merchants to dump oil shares.The usnuclear improvement with Iran allowed extra Iranian oil exports. It eliminated sanctions on Iran and the trade feared it might add to oversupply of oil. Markets reacted by lowering provide of oil, leading to lowered costs. Russia although not a member of OPEC has a significant affect in OPEC choices. With out its Help OPEC’s targets may not get the consequences as anticipated. Within the period of typical oil, the OPEC led by Saudi Arabia set the world oil value. Now shale oil manufacturing in the usalso determines costs. Lack of belief has made it uneasy to implement widespread choices that might be mutually helpful. Even when OPEC manages to cut back provide, the impact on the oil value is not going to be felt until main non-OPEC producers like Russia and the usget concerned.Three.2 Diminishing affect of OPECTwo components political and innovational are at present making an impression within the crude oil trade internationally. Conflicts in member nations with wars like in Nigeria, Iraq and rebellion Libya trigger shortfall in manufacturing. Many OPEC nations are high-cost producers and member states pursuits have gotten more and more completely different. That is making it uneasy for the group to agree on new manufacturing volumes. An efficient freeze in manufacturing is tough to attain and be sustained in the long term. OPEC members don’t all the time adhere to agreements to cut back manufacturing. Extra provide to the market is coming from U.S shale oil, greater manufacturing from Norway and the delayed manufacturing of the Kashagan discipline in Kazakhstan manufacturing and Chinas financial slowdown. Any big or longer lasting manufacturing minimize from OPEC might ultimately not yield. Reaching a value excessive sufficient to generate monetary aid from its members however low sufficient to maintain high-cost producers from re-investing the market calls for classy micromanagement of world oil costs. This seems uneasy in view of the truth that non-OPEC and OPEC producers haven’t been in a position to agree on the manufacturing minimize in 15 years. Saudi Arabia appears to have misplaced belief in its personal reserves to protect its stability economically and its regional affect because of local weather safety insurance policies internationally, technological advances within the different power sources growing utilization of renewables and electrical and hybrid autos. The transition from fossil fuels to different power sources could come sooner than anticipated. Oil value adjustments make immense incentives for innovation superior manufacturing methods that led to grease extraction and more practical drilling strategies. These affect the market therefore the value. Terrorism in The Gulf and on oil institutions, embargos and sanctions, pure disasters, microeconomic fluctuations, long run elasticity of demand and provide, geopolitical uncertainties, total wealth of worldwide economies, rise of recent financial powers, lack of investments, the character of the useful resource threat, expertise development, price of declining fields and impression of non-OPEC members and biomass are all components that affect the world oil prices3.Three Trying to the futureLess reliance on oil imports from OPEC would enable U.S policymakers to be extra assertive, doubtlessly portending a rupture within the Saudi Arabia – U.S relationship or a harder line in opposition to Venezuela. The rising significance of U.S oil manufacturing has raised some worries that U.S oil manufacturing policymakers might transfer nearer to OPEC on local weather change coverage, as the usAdministration has rolled again the regulation of fossil fuels and withdrawn from international dedication to cut back carbon emissions. The Saudi Arabia management inspired the American administration’s withdrawal from the 2015 settlement on Iran’s nuclear program and the re-imposition of sanctions on Iranian oil, and a significant problem for the block can be retaining manufacturing regular and markets calm as Iranian oil exports cut back. The sanctions have been accompanied by growing frustration inside the usAdministration that wanted allies just like the Saudi Arabia and UAE to maintain provide excessive to allow the usto sanction Tehran with out disturbing oil prices. OPEC has as an alternative cut back oil manufacturing since December 2018. In the meantime, divisions inside OPEC appear to persist. In January 2019, Qatar formally withdrew from OPEC indicating its misunderstanding with Saudi Arabia over the group and an ongoing Saudi led blockage of the nation. If Riyadh continues to implement a extra assertive overseas coverage, it might be a problem for Cartel to stay united. For OPEC and Russia, mixed with the rise of shale oil, growing U.S power independence and world insurance policies on international local weather change, brings uncertainty. The refining trade amongst its stakeholders is a perceived threat, and its capacity to sale power to billions of shoppers world wide.Others have responded by shopping for German residential photo voltaic battery maker Sonner and investing in Electrical car charging stations in Europe along with its hydrogen gas enterprise. BP is moreover getting within the Electrical car charging enterprise and has in settlement to display how its enterprise can align Paris local weather objectives together with govt remuneration primarily based on emissions reductions. Scientific improvements are quickly taking a middle stage within the trade heading at lowering over-reliance on crude oil.Three.four OPEC affect on international oil pricesFossil fuels remains to be of larger significance to the worldwide financial wellbeing even when different renewable energies emerge because the world demand is growing with improvement and inhabitants progress. Taking into account that it’s primarily utilized in transportation be by land or air. For the foreseeable future, renewables, nevertheless admirable can be supplementary. With all sources of power, typical, unconventional together with renewable will likely be wanted to adequately cowl the ever-increasing consumption ranges. OPEC has a major affect on the oil value in instances forward. Over the long term, its capability to affect the value shall be restricted as a result of the person Nations have completely different incentives than OPEC as a complete, as an example, if a Nation is uncomfortable with the price of oil, it’s in its pursuits to cut back the provision of oil in order that costs rise. Nevertheless, no particular person nation actually needs to cut back provide as this might cut back revenues. The demand and provide decide the value equilibrium when OPEC share of the world oil declines with the brand new manufacturing coming from outdoors nations like the usand Canada OPEC expectations can be altered. The adjustments of oil costs created incentives for scientific innovation in new expertise which have led to grease extraction and more practical drilling strategies. The OPEC Nations also can take heed to the technological developments and preserve tempo with the extent of developments to nonetheless have an affect within the oil market costs globally. OPEC has four-fifths world’s confirmed crude oil reserves practically 850 Billion barrels. It is going to provide many of the crude within the years forward, a market by which oil is believed to stay the main power supply.CHAPTER FOUR4.1 Suggestions and ConclusionsOPEC is taking part in an enormous function within the international oil markets regardless of reducing member reserves, transfer in direction of Renewable energies and new sources outdoors the group have affected the worldwide market.However inasmuch as OPEC controls virtually 50% of the oil manufacturing worldwide its impression can be felt, and whereas it may not final one other 57 years OPEC’s impact remains to be to be felt so long as reliance remains to be on the crude oil use. OPEC continues to be highly effective forasmuch because it implements its mission and targets.BIBLIOGRAPHYBooksAleksander Dugin: Basis of Geopolitics, 1997Ewan William Anderson: The Center East Geography and Geopolitics, 2000Mordechai Abir: Saudi Arabia: Authorities, Society and the Gulf Disaster 1994 ” revealed by Westview press January 13, 1988.Aleksander Dugin: The Fourth Political Idea, 2009JournalsThe Geopolitics of the US, Half 1: The Inevitable Empire. July four, 2016 09:49 GMT ” Geopolitics of the US, Half 2 American Id and the Treats of Tomorrow “