Decrease Dependance on OPEC

Increase in the price of crude oil has beaten all expectations. In September 1999 crude oil was below $ 20 per barrel; in March 2004 it was around $30 per barrel; in April 2007 it reached to $60 per barrel; at present the price is somewhere around $125 per barrel and it is expected to cross $ 200 per barrel in near future.

Demand for crude oil has increased considerably in recent years. Rapid urbanization of developing countries and increase in the use of vehicles (public and private both) are considered to be the major cause of the increase in demand of crude oil. Supply has not increased as compared to increase in demand so the price of crude oil is increasing rapidly. Besides, weakening of dollar too has resulted in rise in price of crude oil.

World’s energy demand is growing at an annual average rate of 1.7 percent. Organization of Petroleum Exporting Countries (OPEC) has agreed to invest over $150 billion to increase the production of crude oil by 5 mb/d by 2012. Although the OPEC member countries are giving some signal of increasing the supply of crude oil but they are apprehensive to do it on large scale. Certain uncertainties which haunt the OPEC member countries are:

Future economic growth of the world.

Performance of non-OPEC countries

Policies of individual countries regarding the consumption of oil.

Technological development.

More than three-quarters of recoverable crude oil reserves of the world is with OPEC. OPEC which at present has 13 member countries is world’s one of the most successful cartels.

For OPEC member counties crude oil is the major contributor in their economic development. In the year 2006 crude oil accounted for 75 percent of total export revenues for OPEC member countries; however for majority of the member countries the contribution exceeded 90 percent. This is why these countries look for secure oil market and predictable demand and supply to ward off any uncertainty. And whenever they get an opportunity to maximize their profit they do it at any cost.

During 1980’s demand for crude oil had decreased to half which had adversely affected the OPEC member countries. Proper and reliable demand forecasting will help both the supplier and the consumers. Joint Oil Data Initiative is a new concept which is now being practiced wherein both the producers as well as the consumers equally participate in forecasting demand.

Although enough crude oil reserves are there to meet our demand for oil for decades to come, it is important that effort should be made to find an alternative means. The world should not be completely dependent on OPEC member countries for crude oil. Alternative fuels should be developed which will decrease our dependence on crude oil. Political initiative should be there so that OPEC does not take undue advantage of consumers.

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