IndexMotivationOrigin and nature of oil cartelsLiterature reviewRecommendations for the futureReferencesWhat is a "cartel"? A cartel is an organization created by a formal agreement among a group of producers of a good or service to regulate supply in an attempt to regulate or manipulate prices. In other words, a cartel is a collection of otherwise independent businesses or countries that act together as if they were a single producer and therefore are able to set prices for the goods they produce and the services they provide without competition. A cartel has less control over an industry than a monopoly, a situation in which a single group or company owns all or nearly all of the market for a particular product or service. Some cartels are formed to influence the price of legally traded goods and services, while others exist in illegal industries, such as pharmaceuticals. In the United States, virtually all cartels, regardless of their industry, are illegal under American antitrust laws. Cartels have a negative effect on consumers because their existence results in higher prices and limited supply. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay The Organization for Economic Co-operation and Development (OECD) has made the detection and prosecution of cartels one of its priority policy objectives. In doing so, he identified four main categories that define how cartels behave: price fixing, production restrictions, market sharing and auction rigging (the submission of collusive bids). The World's Largest Cartel The Organization of the Petroleum Exporting Countries (OPEC) is the world's largest cartel. It is a group of 14 oil-producing countries whose mission is to coordinate and unify the oil policies of member countries and ensure the stabilization of oil markets. OPEC's activities are legal because they are protected by US foreign trade laws. Amid the controversy of the mid-2000s, concerns about retaliation and potential negative effects on US businesses led to the blocking of the US Congress' attempt to penalize OPEC as an illegal cartel. Despite the fact that OPEC is considered by most to be a cartel, OPEC members maintain that it is not a cartel at all but rather an international organization with a legal, permanent and necessary mission. Justification OPEC's activities focus on oil, a commodity that has contributed more than any other form of energy to economic development throughout the world over the last century and a half. Analysts agree that hydrocarbons will remain the most important energy source for decades to come. I believe that OPEC's actions in the current difficult period provide a vivid demonstration of the important role the Organization plays in stabilizing the volatile oil market, a role it will continue to play into the future. The obvious conclusion from what I just said is that OPEC is not a cartel, as some still insist on calling us. Rather, it is an international organization of sovereign states, with a legitimate, permanent and essential mission both for its member countries and for humanity at large. Origin and nature of oil cartelsThe Organization of the Petroleum Exporting Countries is an intergovernmental organization of 14 nations as of May 2017. , founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, Venezuela), and based since 1965 in Vienna. In 2016, the 14 countries representedapproximately 44% of global oil production and 73% of the world's proven oil reserves, giving OPEC great influence over global oil prices that were previously determined by American-dominated multinational oil companies. as of May 2017, OPEC members are Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), United Arab Emirates and Venezuela, while the 'Indonesia is a former member. Two-thirds of OPEC's oil production and reserves are located in the six Middle Eastern countries surrounding the oil-rich Persian Gulf. OPEC was based on principles that are as valid today as they were then, despite the vast number of changes we have experienced since then in technology, economics, politics and many other aspects of our lives. These principles revolve around the coordination of the oil policies of our member countries, so as to: ensure price stability in the global oil market; obtain stable revenues for oil-producing countries; and provide a regular, reliable, efficient and economical supply to consuming countries and a fair return to investors in the oil industry. The commitment to these principles was reaffirmed recently, in 2000, in the Solemn Declaration which concluded the Second Summit of Heads of State and Government of OPEC Member Countries, which was held in Caracas, Venezuela. Furthermore, we are dedicated to the ideals of last year's World Summit in Johannesburg, to ensure that energy reaches all people and all nations, rich and poor, as an essential element for the sustainable development of humanity. OPEC's mission, however, is not limited by time or circumstance. It is, however, permanent, centered on oil, but extending to the energy sector in general. It involves close collaboration and exchanges with other leading and influential entities in the sector at national and international levels. Oil Market Stability OPEC developed its price band mechanism at the 109th meeting of its conference in March 2000. At that time, it identified $22-28 per barrel as the price range that balances consumer needs and producers. The success of the mechanism can be judged by the fact that, since its inception, the OPEC benchmark basket has averaged $25.30 per barrel, slightly above the middle of the range. The price band mechanism has faced a severe test over the past seven months, in light of supply disruptions in Venezuela, Iraq and, to a lesser extent, Nigeria. The Venezuelan oil industry strike, which began last December and lasted until January, withdrew a staggering 2.8 million barrels per day from the market. That pushed prices more than $3 a barrel above the range. In response, OPEC quickly organized an extraordinary meeting of its conference, which increased the OPEC-10 production ceiling by 1.5 mb/g and restored some balance in a potentially destabilizing market. Oil and cooperation Cooperation is at the heart of OPEC's thinking. Recently, eight non-OPEC oil-producing nations have become observers of our Organization's activities, and this includes participation in our Ministerial Conferences. Prior to these Conferences, we hold meetings to exchange ideas between our Ministers and representatives of observer countries. We also promote workshops and bilateral meetings between observers and OPEC. Furthermore, contacts and action plans are being created between producers and consumers. The Permanent Secretariat of the International Energy Forum was nowestablished in Riyadh. The relationship with the IEA has been strengthened through several events, such as high-level bilateral meetings, joint press conferences and the joint workshop on oil investment prospects that we held at our Secretariat in Vienna just two weeks ago. Oil and the environment Speaking about the future, it is also necessary to dispel another common but incorrect belief according to which fossil fuels are a dirty form of energy. Perhaps this can be traced back to the old coal days. However, the situation has improved significantly in recent years and this will continue in the future. Currently, natural gas is a well-used and cleaner-burning form of energy, while new technologies, such as CO2 sequestration, will allow gas and other hydrocarbons, such as oil, to be burned even at zero emissions. It is important to remember that fossil fuels are a product – and a gift – of nature. Technical progress allows us to use this gift without damaging nature in return. Today it's just a question of costs. Literature Review Organization of the Petroleum Exporting Countries (OPEC) and the Role of Saudi Arabia (Dreca, 2012) The purpose of this research is to explain the position of OPEC and the role of Saudi Arabia within OPEC. Saudi Arabia, as the largest producer and country with the largest oil reserves, attracts a lot of attention, and many studies try to explain what role Saudi Arabia plays within OPEC, whether it is the dominant producer role and what strategy used by Saudi Arabia during its accession to maintain its position and market share. Saudi Arabia's role is to maintain the balance of production within OPEC. Saudi Arabia was explained as a swing producer and, to protect itself and its interests from the cheating of other OPEC members, was forced to adopt the "eye for an eye" strategy. There is a big question about whether it is good to have one dominant producer or whether everyone is the same. OPEC in the Age of Globalization: An Event Study of Global Oil Prices (Bina, 2007) OPEC is not a cartel nor does it show any sign of market dominance, market control, or monopoly. This confirmation is also in agreement with the pioneering explanation of competitive differential oil rents that have formed in the global industry since the crises of the 1970s. OPEC reflects the competitive differential oil rents earned by its members; and, contrary to both the right and the left, and their obfuscating echoes in the media, it advances with the heavy fists of the global market in the current era. Oil market modeling and OPEC behavior (Ayed Al-Qahtani, 2008). The review is divided into two parts (1) oil market modeling and (2) OPEC behavior within the oil market. In part one, I reviewed various oil market simulation and optimization models conducted to date, with more emphasis on optimization ones, while trying to build an oil market model of a similar nature. The second part of the review covers the literature on efforts to date on modeling, testing and analyzing OPEC behavior within the oil market as such market behavior is central to the mathematical formulation and solution of the proposed model. A review of the factors that determine crude oil. Pricing (Happonen, 2009) The impacts of price changes were broad and altered industrial activity, consumer behavior, and political power globally. Understanding the factors behind these changes is important for business investing andthe development of public policies. Academics, analysts and politicians seem to disagree on what the main driver of oil price development is. The most common explanations are resource scarcity, cartel behavior, commodity speculation and market conditions. OPEC and the international oil market: can a cartel fuel the engine of economic development? (Noguera, 2005) The OPEC cartel was formed to promote two economic objectives, one microeconomic – low oil market volatility – the other macroeconomic – promoting the economic development of its members. These objectives create tension since the cartel's only tool is production quotas. Using this double micro/macro perspective we analyze the behavior of oil exporting countries. We believe that the effects of the cartel's choices will be reflected in the stability of the oil market, long-term macroeconomic development and the structure of the international oil market. If an oil-producing country cares about both oil industry profits and macroeconomic stability, the goal of production stability may not be consistent with cartel membership. What OPEC Means for Today's Oil Market During their biannual meeting in Vienna last week, the Organization for Petroleum Export Countries announced their decision to extend their production cut by 1.8 million barrels of oil per day until the first quarter of 2018 to support the recovery in oil prices. Although the market had anticipated the move, the extension did not have a major impact on crude prices, unlike the surge in commodity prices that occurred in November 2016, when the oil deal was first announced OPEC. To put things in perspective, WTI crude oil prices had risen more than 9% in November following the initial agreement to reduce production, compared to just a 2% increase in oil prices when the OPEC announced the extension of the cuts. This trend not only indicates that the proposed production restrictions are not sufficient to have a significant impact on oil prices, but also suggests that OPEC's power to influence crude oil prices is waning. OPEC's changing position in oil markets. Historically, OPEC accounted for more than 40% of global crude oil production and was responsible for the export of nearly 60% of total internationally traded oil. As a result, the cartel's enormous spare capacity, which could be easily maneuvered to adapt to conditions in global oil markets, combined with its significantly low cost of production, allowed it to play the role of Swing Producer, exerting strong influence on crude oil prices. However, things changed for the worse when oil prices collapsed in mid-2014 due to oversupply created by US shale producers. Initially, OPEC decided to continue pumping high levels of oil, despite the collapse in prices, to defend its share of global oil markets. Until mid-2016, this strategy seemed to work well for member countries as they could easily sustain their oil production even at a price of $30 per barrel. That said, the prolonged weakness in oil prices has begun to take a heavy toll on OPEC members and their economies, which rely heavily on oil exports. Therefore, the cartel members, who had previously decided to take an aggressive approach to:.