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SPE 92888 OPEC: Floating Supply For A Balanced & Stable Market, Part I
SPE 92888 OPEC: Floating Supply For A Balanced & Stable Market, Part I
Introduction
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This paper was prepared for presentation at the 14 SPE Middle East Oil & Gas Show and
Conference held in Bahrain International Exhibition Centre, Bahrain, 1215 March 2005.
This paper was selected for presentation by an SPE Program Committee following review of
information contained in a proposal submitted by the author(s). Contents of the paper, as
presented, have not been reviewed by the Society of Petroleum Engineers and are subject to
correction by the author(s). The material, as presented, does not necessarily reflect any
position of the Society of Petroleum Engineers, its officers, or members. Papers presented at
SPE meetings are subject to publication review by Editorial Committees of the Society of
Petroleum Engineers. Electronic reproduction, distribution, or storage of any part of this paper
for commercial purposes without the written consent of the Society of Petroleum Engineers is
prohibited. Permission to reproduce in print is restricted to a proposal of not more than 300
words; illustrations may not be copied. The proposal must contain conspicuous
acknowledgment of where and by whom the paper was presented. Write Librarian, SPE, P.O.
Box 833836, Richardson, TX 75083-3836, U.S.A., fax 01-972-952-9435.
Abstract
OPEC was formed as a joint action between five countries in
1960 in Baghdad to set a fair price for crude oil in the world
market. Today, eleven members account for 40% of world oil
production and 65-70% of proven oil reserves.
OPEC members regularly discuss oil prices and set crude oil
production quotas. OPEC revenue has grown over the last
year, but instability in revenue has been repeatedly related to
geopolitical crises, instability in one or more OPEC member
states, or lower world demand. OPEC pricing is set based on
an arithmetic average of a basket of seven crude types; in
practice, this is unhealthy for the crude price and always fails
to follow the market. Furthermore, there is one trillion barrels
of crude worldwide awaiting cost effective technology to
make it ready for production. This would possibly results in
better price stability in the crude oil market.
OPEC price, based on basket trading, was set for 10 -20 days
as $22.0 28.0 for adjustment. This has not been forced in the
market since it was accounted.
Until the European Union created a unified currency, the US
dollar has been (and still is) the dominant currency since 1945
and handles over 70% of world official exchange reserves.
Will this state of affairs change? Will the oil (and possibly
gas) price become stable whilst subject to rules other than that
of supply and demand? Can the Euro replace the Dollar in the
trading of crude oil? Would it be better for OPEC members to
base production quotas on regulations other than those
currently used?
Most forecasts of prices and quotas face difficulties in finding
rules to follow. This paper discusses ways and means for
better crude market stability.
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SPE 92888
1987. The West Texas light (US benchmark) and Brent from
the North Sea, as well as others, affect the price of the OPEC
basket.
The crude oil market price has reflected political crises in the
world since early 1970s. Fears of oil shortages based on
expectation and speculation in the market have also greatly
affected the crude oil price.
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SPE 92888
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By doing so, the price of the oil will not fluctuate and harm
either local or global economies and the oil price level will be
smooth and parallel with the prices of goods and technology.
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SPE 92888
References
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Conclusions
The crude oil market has been dealing in Dollar for a long
time. On the other hand, the Euro, as a new currency is
currently risky if introduced into the crude oil market. Once
the Euro becomes stabilized both in the Eurozone and globaly,
it can be introduced to the crude oil market.
Words of thanks
I would like to thank Sazan Meran (of King Edwards
Handsworth H.S., UK) for her review and comments.
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SPE 92888
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