OPEC AND OIL PRICES

OPEC brings together most of the world's oil exporting countries to coordinate their petroleum policies and provide them with technical and economoical aid. OPEC was established in september 1960 at Baghdad,Iraq and was formally constituted by Iran,Kuwait,Saudi Arabia and Venezuela in 1961. OPEC was susequently joined by Qatar(1961),Indonesia and Libya(1962),Abu Dhabi(1967;membership was transferred to UAE in 1974),Algeria(1969),Nigeria(1971),Ecuador(1973) and Gabon(1975). The headquarters initially at Geneva was shifted to Vienna in 1965.

Today OPEC accounts for 40% of world's oil producton(In 1973 it was 55% and in 1980 it was 45%; the decline is due to increased role of Russia and Kazakistan). The supreme authority of the organisation is the conference consisting of reprentatives (generally oil ministers) of all the member states,each with one vote. It meets twice a year to formulate policies. All decisions (except those concerned with procedural matters)are adopted unanimously. The resolutions of the conference become effective 30 days after the conclusion of the meeting at which they are adopted,unless one or more members submit their opposition to the resolution.

However,an absence of effective coordination with non-OPEC oil producing countries has lead to much tensions in the world oil market. Four members-Kuwait,Qatar,Saudi Arabia and UAE-have large oil reserves in relation to thier population. The largest producer is Saudi Arabia, second largest being Iran.

OPEC decisions have been of great significance in the world oil market. OPEC gave FIRST OIL SHOCK to the world in October 1973(using oil prices as a political weapon against western nations for supporting Israel in the war of 1973).The organisation again raised prices to 130% in December 1973 and an embargo was placed on oil shipments to the US and Netherlands at the same time.

However,today condition is very different. Oil prices are going down like anything. It has reached below $34 a barrel (as in the third week of December 2008). The main reason of this is price cycle. First demand in western countries was huge(mainly in US which stands at no.1 position when it comes to oil consumption).However,OPEC kept on increasing oil prices. Then suddenly recession came into action and hence demand decreases,especially in western countries(this decrease in demand was due to the fact that people now want to spend less). As a result of decrease in demand, oil prices started coming down.

Recently,OPEC met in Oran, Algeria on December 17, 2008, and decided to cut 4.2 million barrels per day (mmbd) from their actual September production level of 29.045 for the OPEC subject to production quotas, effective January 1. This amounts to an additional cut of approximately 2.4 mmbd from the October production quota level of 27.308, and a cut of 2.9 mmbd from estimated November production, if the cuts are fully implemented.

While this is a somewhat confusing way to present their decision, the Algerian announcement would imply a new OPEC production goal of 24.845 mmbd from January 1. When combined with the October agreement, this latest cut represents a cumulative 4.0 mmbd decline from the September quota agreement, and a 4.2 mmbd cut (or 14.4%) in actual OPEC production from September levels. Non-OPEC producers Azerbaijan and Russia, who attended the meeting as observers with great fanfare, declined the opportunity to join OPEC and did not make a formal pledge to cut production and exports. Mexico and Norway declined to participate, saying that their production was already declining as a result of depletion.

OPEC is trying its best to increase world oil prices. However experts believe that oil prices are unlikely to go above $70 a barrel in 2009. Experts also believe that US President-elect Barack Obama’s stated policy of supporting development of alternate energy sources will also impact oil prices. At current crude oil prices developing alternate energy sources is no viable. But if the new US government subsidises alternate energy, and gives concessions, then companies will think about it.

Its difficult to predict anything with 100% accuracy. However world believes that countries like China and India have the potential to play some role in this context as demand for oil in these countries is constantly increasing. So this time not just OPEC, but India,China,Russia,kazakistan and many others have a major role to play. Lets hope whatever happen would be good for everyone.

GAME THEORY

Game theory is a technique for analysing how people,firms,and governments should behave in strategic situations and in deciding what to do,must take into account what others are likely to do and how others might respond to what they do. For ex-competition between two firms can be analysed as a game in which firms play to achieve a long term competitive advantage. The theory helps each firm to develop its optimal strategy for,say pricing its products and deciding how much to produce.It can help the firm to anticipate in advance what its competitor will do and show how best to respond if the competitor does something unexpected.It is particularly useful for understanding behaviour in monopolistic competition.

In game theory,which can be used to describe anything from wage negotiations to arm races,a dominant srategy is one that will deliver the best results for the player,regardless of what anybody else does. One finding of game theory is that there may be a large "first mover advantage" for companies that beat their rivals into a new market or come up with an innovation. One special case identified by the theory is the "zero sum game"where players see that the total winnings are fixed;for some to do well,others must lose. Far better is the "positive sum game" in which competitive interaction has the potential to make all the players richer.

CLEARENCE TO FOREIGN NEWS MAGAZINES

Foreign news magazines can now come out with Indian editions with union cabinet clearing an information and broadcasting ministry proposal to review the print media policy to this effect. Till now,only indian editions of foreign scientific,technical and speciality periodicals & journals were allowed. However,unlike in the case of niche publications like scientific,technical and speciality periodicals-where cent percent foreign investment is allowed,publishers of Indian editions of foreign news magazines will be eligible only for 26% foreign investment. Only Indian companies registered under the "Indian companies Act,1956"will be allowed to bring out Indian editions of foreign news magazines.