Question

The opening statement on the website of the Organization of Petroleum Exporting Countries (OPEC) says its members seek “. . . 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.” To achieve this goal, OPEC attempts to coordinate and unify petroleum policies by raising or lowering its members’ collective oil production. However, increased production by Russia, Oman, Mexico, Norway, and other non-OPEC countries has placed downward pressure on the price of crude oil. To achieve its goal of stable and fair oil prices, what must OPEC do to maintain the price of oil at its desired level? Do you think this will be easy for OPEC to do? Explain.

NOTE: YOUR ANSWERS IN THIS SECTION WILL BE SUBJECTED TO A PLAGIARISM CHECK AND ANY ANSWER WITH MORE THAN 20% SIMILARITY INDEX WILL BE AWARDED ZERO POINTS. YOUR ANSWER TO EACH QUESTION SHOULD NOT BE MORE THAN ONE PAGE.

Answer 1

OPEC ( ORGANIZATION FOR PETROLEUM EXPORTING COUNTRIES )

HOW THE PRICE IS MAINTAINED AT DESIRED LEVEL?

The OPEC stands as an organization for the countries who actively involved in the production and export of the petroleum products (mainly the export of the crude oil or the refined oil) to the other nations. Being an organization the prime important factor associated with this organization is to ensure a stable and fair prices and profit not only for the producers but also for the consumers. The organization is very vigilant in ensuring this basic idea.

And it is a very important question that how this organization can control the price of the petroleum or the crude oil and how this OPEC can ensure a stable price for the products. But it is the fact that the OPEC controls the price of the oil by mainly regulating the production. The main aim is that the price of the crude will not be too high or it will not be too low. This two conditions can affect the producers or the consumers. It is because of the reason that when there is a price hike and it become too high the consumers can't afford such an increase and they consume less. And hence the sale become affected and it will be lowered. When the price become too low it will affect the producer nations and the companies. The companies will face the loss in the production and the distribution. And a majority of the member nations in OPEC depends upon the price of the oil for their smooth running and their functioning. Hence this will be affected with this low oil price.

The oil price is mainly regulating by controlling the production or the extraction of the oil. The production of the oil is must be done on the basis of the demand produced in the economy. If the demand is too low, for example in the case of lock down at the time of the spread of COVID-19 is too low then the production must be reduced. When the production is done against the demand then the price will be fluctuated with the trend at that time.

And it is very important for the organization to control the oil price in the desired level, which means the profits awarded for the companies and nations. The organization must ensure a coordination not only among the member nations of OPEC but also with the consumer nations. Then only the price of the oil can maintain at the stable level. It is because of the reason that the oil price will affect the economies of a number of nations, especially the developing countries must face challenges with the fluctuation in the oil price.

IS IT EASY TO CONTROL THE OIL PRICE?

When we met with this question, whether it is easy to control the oil price. The answer is that it is not that much easy to control the oil prices. The reason behind this fact is that the price of the oil depends not only on a single factors. But the price is determined by the various international factors and this factors will be different in accordance with the nations.

The problems and the conflicts between the nations will influence the price of oil. Especially the developing and developed nations. The wars and conflicts in the borders will raise an international tension among the nations. Main reason behind this is the fact that after the globalization now there forms an international integration and inter dependence among the nations. And the world has become a single market. The appreciation and the depreciation of the currency will have an impact for the purchasing nations. Due to this reason this process is not that much smooth. The economic problems in the consumer nations will also have an impact in the oil price fixation along with the current situations in the producing nations.