OPEC's Share of the World
Market
A major key to understanding
why OPEC does not always do what seems obvious to the rest of us is the
battle for market share within OPEC. To examine this we start with
an overview of OPEC's history. The graph below shows average daily production
by country for each of the current members of OPEC. The
graph shows discontinuities in the production of Iraq, Iran and Kuwait.
The first two are the result of the Iraq - Iran conflicts in 1979 and 1980.
The third discontinuity, in 1990, was the result of Iraq's invasion of
Kuwait and the ensuing Gulf War.
Recall the history of OPEC
following Arab Oil embargo which started October 19-20, 1973 and ended
March 18, 1974. During that period the price for benchmark Saudi Light
increased from $2.59 in September 1973 to $11.65 in March. OPEC was setting
benchmark prices for its various crudes.
By
1981 the effects of seven years of increased prices had had taken its toll
on demand in the form of more energy efficient homes, industrial process,
and in substantial increases in automobile gasoline mileage. At the same
time crude oil production was increasing in the rest of the world. OPEC's
total production stayed relatively constant during this period around 30
million barrels per day. However, OPEC's market share was decreased from
over 50 percent in 1974 to 47 percent in 1979. The loss of market share
was caused by production increases in the rest of the world. Higher crude
prices had made exploration more profitable for everyone not just OPEC
and many rushed to take advantage of it.
|