OPEC PPT

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Economics

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Feb 20, 2024

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MuskaanKaur Sagar Deepthi Kethavath Ashvi Vijay Soni The Strategic Impact of OPEC on Global Oil Prices: An Examination through Game Theory
CONTENT Overview of OPEC OPEC as an oligopoly Game Theory and OPEC’s decision- making Current Scenario Impact on global prices Case Study: Saudi Arabia
WHAT IS OPEC ? The Organization of the Petroleum Exporting Countries (OPEC) comprises oil- producing nations working together to regulate oil production levels, aiming to stabilize global oil prices. Oil production cuts are often implemented to balance the supply and demand for oil, preventing oversupply and supporting higher oil prices.
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According to secondary sources, total OPEC-13 crude oil production averaged 27.75 mb/d in September 2023, higher by 273 tb/d m-o-m. Crude oil output increased mainly in Nigeria, Saudi Arabia and Kuwait, while production in Venezuela and Equatorial Guinea decreased.
Oligopoly
OPEC AS AN OLIGOPOLY OPEC, an oil cartel, operates as an oligopoly . It controls a significant portion of global oil production, allowing member countries to influence prices. OPEC's actions can impact the global economy and oil market stability. Critics argue that its market power leads to higher oil prices, while supporters claim it ensures stability and investment in the industry. Overall, OPEC's oligopolistic structure has a substantial influence on the oil market. OPEC, an oil cartel, operates as an oligopoly . It controls a significant portion of global oil production, allowing member countries to influence prices. OPEC's actions can impact the global economy and oil market stability. Critics argue that its market power leads to higher oil prices, while supporters claim it ensures stability and investment in the industry. Overall, OPEC's oligopolistic structure has a substantial influence on the oil market.
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Game Theory and OPEC's Decision- making An overview of game theory concepts such as Nash equilibrium and strategic interactions, providing the foundation for analysing OPEC's behaviour in the global oil market.
OPEC's decision-making process can be analysed using game theory, specifically the prisoner's dilemma. This concept involves two players who must decide whether to cooperate or defect. In OPEC's case, member countries face a similar choice: to cut or increase oil production. Each country's decision affects the market and their own economic interests. Game theory provides insights into the complex dynamics of OPEC's decision-making process. OPEC's decision-making process can be analysed using game theory, specifically the prisoner's dilemma. This concept involves two players who must decide whether to cooperate or defect. In OPEC's case, member countries face a similar choice: to cut or increase oil production. Each country's decision affects the market and their own economic interests. Game theory provides insights into the complex dynamics of OPEC's decision-making process.
CURRENT SCENARIO: OPEC members face a parallel dilemma. While restricting oil supply collectively could raise prices for mutual benefit, individual interests push members to increase supply for better returns, especially when others are cutting back. This choice leads to a less-than-ideal outcome for the whole group.
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Case Studies: Saudi Arabia's Cuts and Member Resistance Saudi Arabia's decision to cut production is a significant move in the oil market. It aims to stabilize prices and mitigate the impact of oversupply. However, member resistance within OPEC+ poses challenges to the effectiveness of these cuts. Analyzing the reasons behind Saudi Arabia's decision and the potential implications of member resistance is crucial for understanding the dynamics of the oil industry. Saudi Arabia's decision to cut production is a significant move in the oil market. It aims to stabilize prices and mitigate the impact of oversupply. However, member resistance within OPEC+ poses challenges to the effectiveness of these cuts. Analyzing the reasons behind Saudi Arabia's decision and the potential implications of member resistance is crucial for understanding the dynamics of the oil industry.
Saudi Arabia's Production Cuts: • In June, Saudi Arabia reduced oil production by 1 million barrels, aiming for stability. • Recent considerations for more cuts caused a 1.5% surge in Brent prices, surpassing predictions. OPEC Resistance & Game Theory Challenges: • Some OPEC members resist collaboration due to geopolitical complexities. • Saudi Arabia and Iran's reluctance impacts market dynamics despite mutual benefits. • Energy alternatives like fracking limit OPEC's price control. • Joint OPEC action could potentially drive oil prices beyond $100/barrel.
CONCLUSION- Summarizing the strategic impact of OPEC on global oil prices as analyzed through game theory, and highlighting key takeaways for understanding and navigating the complexities of the global oil market. Summarizing the strategic impact of OPEC on global oil prices as analyzed through game theory, and highlighting key takeaways for understanding and navigating the complexities of the global oil market.
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