ABSTRACT
This study analyzes crude oil production by OPEC member countries between 2001 and 2010, using the method of simple regression analysis, the work is aimed at predicting the future situation in terms of crude oil production by OPEC member countries. The data for this study was collected from the internet (www.indexmund.com/energy) Minitab and Microsoft excel are used to run the complete regression analysis of the data. After the analysis, a prediction was made for about three years. It was observed that there is year to year increase in production of crude oil by OPEC member countries. A correlation analysis was also employed to know the strength of relationship between the crude oil production (quantity) and time (yearly) which indicates a very strong positive relationship between the crude oil production and time
TABLE OF CONTENT
Title page i
Approval page ii
Dedication iii
Acknowledgement iv
Abstract v
Table of contents vi
CHAPTER ONE
Introduction 1
1.1 Statement of problem 5
1.2 Aims and objective
of the study 6
1.3 Research questions 7
1.4 Test of Hypothesis 7
1.5 The significance of the study 8
1.6 The scope of the study 9
1.7 Definition of terms 9
CHAPTER TWO
Literature review 10
CHAPTER THREE
Source of data 18
Method of analysis 18
Limitation of study 20
Validation of the data collected 20
CHAPTER FOUR
Data Analysis and interpretation 22
Interpretation of result 22
CHAPTER FIVE
5.0 Conclusion and
recommendation 29
5.1 Conclusion 29
5.2 Recommendation 29
Reference 30
Appendix 31
CHAPTER ONE
1.0 INTRODUCTION
OPEC
(Organization of Petroleum Exporting Countries) is an intergovernmental organization of twelve
developing countries made up of Algeria,
Angola,
Ecuador,
Iran,
Iraq,
Kuwait,
Lisbya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates,
and Venezuela.
Venezuela and Iran were the first countries to
move towards the establishment of OPEC in the 1960s by approaching Iraq, Kuwait and Saudi Arabia in
1949, suggesting that they exchange views and explore avenues for regular and
closer communication among petroleum-producing nations. The founding members
are Iran,
Iraq,
Kuwait,
Saudi Arabia,
and Venezuela.
Later members include Algeria,
Ecuador,
Gabon,
Indonesia,
Libya,
Qatar,
Nigeria,
and the United Arab Emirates.
OPEC was founded to unify and
coordinate members’ petroleum policies. Original OPEC members include Iran, Iraq, Kuwait, Saudi Arabia,
and Venezuela.
Between 1960 and 1975, the organization expanded to include Qatar (1961), Indonesia
(1962), Libya
(1962), the United Arab
Emirates (1967), Algeria (1969), and Nigeria (1971).
Ecuador and Gabon were early members of OPEC, but Ecuador withdrew on December
31, 1992 because it was unwilling or unable to pay a $2 million (two million
dollars) membership fee and felt that it needed to produce more oil than it was
allowed to under the OPEC quota, although it rejoined in October 2007. Similar
concerns prompted Gabon
to suspend membership in January 1995. Angola joined on the first day of
2007.
OPEC has maintained its
headquarters in Vienna
(capital of Austria)
since 1965, and hosts regular meetings among the oil ministers of its Member
Countries. Indonesia
withdrew in 2008 after it became a net importer of oil, but stated it would
likely return if it became a net exporter again.
According to its statutes, one of
the principal goals is the determination of the best means for safeguarding the
organization’s interests, individually and collectively. It also pursues ways
and means of ensuring the stabilization of prices in international oil markets
with a view to eliminating harmful and unnecessary fluctuations; giving due
regard at all times to the interests of the producing nations and to the
necessity of securing a steady income to the producing countries; an efficient
and regular supply of petroleum to consuming nations, and a fair return on
their capital to those investing in the petroleum industry.
According to the Energy Information Administration, in 2008 roughly 43% of the world’s oil production was attributed OPEC member countries. Furthermore, OPEC member countries have approximately 70% of the proven oil reserves in the world.
Furthermore,
the International Energy Agency (IEA) and the Energy Information Administration
(EIA) project an increase in global demand for oil over the next several
decades which raise the question on whether this increased demand can be met by
OPEC oil production.
By the early 1970s, in addition to the oil embargo, OPEC oil production was influenced by the change in the oil pricing system from multinational oil companies to OPEC with the halt on authorizing new concessions by OPEC governments, movement towards equity participation in the existing concessions, and in some cases the nationalization of the oil industry. As a result by the late 1970s, multinational companies diversified their oil supply sources in the development of oil reserves outside of OPEC. In response to higher oil prices by the early 1980s, the discovery of oil reserves in non-OPEC countries in conjunction with advances in new technology brought forth an increase in the supply of oil to the international market resulting in downward pressure on oil prices with OPEC losing market share. With the infusion of non-OPEC oil producers and their prices more responsive to competitive market conditions, OPEC abandoned the administered oil pricing system by the mid-1980s instead moving to market-reference pricing based on the price quotes provided by oil price reporting agencies. However, the limited liquidity of the spot market gave way to the use of the futures market which provided greater liquidity and price transparency.
OPEC
would adjust production quotas to achieve a desired price target zone. However,
OPEC’s ability to influence price is dependent on market participants’
expectations in the futures market.
Essentially, OPEC’s decisions on production quotas provided signals to the market about OPEC’s desired range of prices, the effectiveness of the signals depended on whether the market believed that OPEC could make the necessary production adjustments in light of market conditions (Fattouh, 2007). In the face of a decrease in the global demand for oil, OPEC would attempt to defend a target price by cutting production. However, the success of such production cuts hinges on the coordination efforts and bargaining power of OPEC member countries.
On
the other hand, while coordination to increase production quotas may be easier
with an increase in the global demand for oil, OPEC may not respond quickly to
this upward trend given uncertainty about future demand (Fattouh, 2007). Due to
the large investment outlays required and the irreversibility of the
investment, the decision to wait and not increase oil production would be more
profitable than to increase oil production when the trend may turn out to be false
(Dixit and Pindyck, 1994; Gately, 2004; Fattouh, 2007).
1.1 STATEMENT OF THE
PROBLEMS
OPEC’s
oil production is influenced by a myriad of factors such as:
- The price of oil and market conditions, i.e. the global demand for oil along with the production associated with non-OPEC oil producers and the geopolitical environment.
- Declines in price.
- Output policies have become more complicated given the emergence of the future market in signaling oil prices and the corresponding adjustments in oil production.
- The ability of OPEC to increase production capacity is also influenced by state control of the oil sector and the geopolitical climate. With respect to investment and production in member countries with state control of the oil sector, the increasing demands on the government to finance other socio-economic projects imposes budgetary constraints on national oil companies to expand production capacity. Also, an unfavorable geopolitical climate for OPEC member countries in terms of security concerns and sanctions would have an adverse impact on the investment climate and thus may limit capacity expansion.
STATISTICAL STUDY OF CRUDE OIL PRODUCTION BY OPEC MEMBER COUNTRIES (2001-2010)
