Organisation of Oil Producing and Exporting Countries which has twelve members in total namely Saudi Arabia, Iraq, Iran, Kuwait, Qatar, United Arab Emirates, Venezuela, Ecuador, Libya, Nigeria, Angola and Algeria. It should be pointed out that OPEC countries are among the major oil producing and supplying nations, which enjoy almost over 65 per cent of world’s proven oil reserves, nearly of 40% total production and around 55 per cent in world’s oil exports (Breitenfellner et al, 2009). OPEC, having secretariat in Vienna, is referred to a cartel because of this members mutually decide about changes in their oil production and supply to nations worldwide. In addition, they opt to constrict supply to escalate international oil prices and thus reap additional profits on exports of crude oil. On the other hand, OPEC members, especially Saudi Arabia, have also increased supply in past (1992 Gulf war) to control shortages.
Oil demand has very low price elasticity or in other words, the inelastic demand because oil is used for energy generation, industries, transportation and cooking. Indeed, the oil supply also has very low price elasticity because it is difficult to extract, produce and refine as heavy plant machinery and investment is needed to accomplish these objectives. There were, indeed, many factors that led to first peak oil (crises in 2008) and finally in steep reduction in world oil prices. The first major reason was the fact that demand increased heavily due to growth in International trade after elimination of trade barriers and decrease in custom tariffs and duties. This not only led to growth and expansion in advance economies but also in developing nation of Asia, Middle East, Eastern and Central Europe, especially China, India, Pakistan, Malaysia, Indonesia, Saudi Arabia, Turkey, Thailand, Hungary and others etc. The world oil demand skyrocketed and touched 85 million barrel mark in 2007 – 2008. Oil then became expensive because buyers were ready