The Organization of Petroleum Exporting Countries (OPEC) is a 12 member cartel of oil producing nations that supply more than a third of the world’s total oil demand . In recent times it is facing a number of challenges. The global oil prices are falling due to lower demand for oil in the world market as many of the economies are facing recessionary trend. Another cause of fall in the oil prices is a spurt in global oil supply which can be attributed to the US shale revolution. In the face of this plunge in the oil prices in the oil market the OPEC as a cartel should have cut oil production so that there would be some downward support to the price. The OPEC, on the contrary, has actually kept the production target unchanged. This decision was taken as the member countries were unwilling to cut their production. The member countries expressed apprehensions about losing their market share if they cut their production. Most of the member countries depend on the proceeds from oil exports to support their budgetary expenditure. Moreover, the OPEC has realized that a drastic cut will lead to a rise in the oil prices only for a short period of time as the price rise will lead to a higher supply of US shale oil. Thus the recent decision of OPEC to keep the global supply target unchanged reveals the inherent weakness in the cartel. It has also been pointed out by the experts that though OPEC had gone through internal conflicts before it has not taken such a shape before . Because of the conflicts a tighter cap could not be imposed on OPEC’s oil supply. This proves OPEC’s failure as a cartel to rein in global oil prices.
References
Faucon, B., Said, S., & Kent, S. (2014, Novemner 27). OPEC Leaves Production Target Unchanged. Brent Crude Price Plunges toFresh Four-Year Low. THe Wall Street Journal.
