History Suggests OPEC's Days Could Be Numbered
by Andrew Mayeda
10:52 AM EDT March 10, 2015
As OPEC 's refusal to curb oil production contributes to a nine-month plunge in prices, a new paper suggests the group's days may be numbered.
OPEC, the Organization of the Petroleum Exporting Countries, has vowed to defend its market share against higher-cost producers such as U.S. shale drillers and companies developing Canada's oil sands. Its strategy hinges on the odds that an extended period of low prices will lead other producers to scale back output, enabling the group to reassert its influence. OPEC supplies about 40 percent of the world's crude.
Yet a brief history detailed by the World Bank Group shows how difficult it can be to maintain a commodities cartel in the face of market forces and technological advances.
Following World War II a number of agreements were struck to govern trade in commodities including wheat, sugar, tin, coffee and olive oil, according to the Washington-based development bank. Producing and consuming nations often negotiated the deals to stabilize price levels. All of the agreements eventually collapsed--with the notable exception of OPEC, which was founded in 1960 and is led by Saudi Arabia.
Take tin. Once upon a time, people wrapped their leftovers in it. Most beverage cans were made of it. Now that job falls primarily to aluminium, a lighter metal that's less susceptible to corrosion. According to the World Bank, the rise of aluminium as a substitute was a driving factor behind the collapse in 1985 of the tin cartel, which was formed in 1954.
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http://www.bloomberg.com/news/articles/2015-03-10/opec-beware-cartels-tend-to-end-in-tears
