Organization of the Petroleum Exporting Countries OPEC

In 2016, when oil prices were particularly low, Opec joined forces with 10 other oil producers to create Opec+. OPEC is a cartel that aims to manage the supply of oil in an effort to set the price of oil on the world market and avoid fluctuations that might affect the economies of both producing and purchasing countries. The OPEC Special Fund was conceived in Algiers, Algeria, in March 1975, and was formally established the following January. Saudi Arabia is the leading member of Opec, a cartel of 12 oil-producing nations which has a remit to “work together to ensure stable oil prices”. “Opec+ tailors supply and demand to balance the market,” says Kate Dourian, of the Energy Institute.

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It either agrees to cut down the production volume of its member countries during periods of expensive oil or increases its production during periods of inexpensive oil. Note that the organization can substantially impact these prices because its member countries collectively supply more than 40 percent of the global oil demand while holding more than 80 percent of the total proven oil reserves of the world. There are several advantages of having a cartel like OPEC operating in the crude oil industry. First, it promotes cooperation among member nations, helping them alleviate some degree of political hostilities. And because the organization’s main goal is to stabilize oil production and prices, it is able to exert some influence over production from other nations. Because OPEC has been beset by numerous conflicts throughout its history, some experts have concluded that it is not a cartel—or at least not an effective one—and that it has little, if any, influence over the amount of oil produced or its price.

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A cartel can be defined as a coalition of independent parties formed to promote a mutual interest through market control or price manipulation. “We are seeing a sharp slowdown in economic growth in developed countries, almost to the point of them going into recession,” he says. “And we don’t think the demand for oil in China will increase a great deal in the next few months. So the market will not be that tight in the second half of the year.” Ecuador left the organization in December 1992 because it was unwilling to pay the annual membership contribution of USD 2 million and wanted to produce oil outside the quota mandated by the organization.

Why is Opec+ cutting oil output?

Following Russia’s invasion of Ukraine, the price of Brent crude soared to more than $130 a barrel. However, by March 2023 it had fallen back to little above $70 a barrel – a 15-month low. It is thought that Saudi Arabia, which is currently chairing Opec+, needs to have the price of Brent crude rising to $80 (£65) a barrel or more to cover its government spending and import bill.

• These alternatives, such as shale production as an alternative energy source, and hybrid and electric cars that reduce the dependence on petroleum products, continue to put pressure on the organization.
• The group agreed to reduce production to stabilise prices by reducing supply.
• Iran opposes the deal because then Saudi Arabia and Russia will dominate the organization.
• One of the criticisms of OPEC is that it cannot effectively arrive at a consensus because each member state can have different economic interests and goals.
• However, by March 2023 it had fallen back to little above $70 a barrel – a 15-month low.
• The Organization of the Petroleum Exporting Countries or OPEC is an intergovernmental organization composed of 13 countries with proven oil reserves and the capacity to extract these reserves for exportation in the global petroleum market.

What’s happening with Russian oil?

• OPEC has used its sway over the global oil markets many times to affect pricing.
• Having said this, it’s no surprise that any moves the group makes have a big impact on global energy prices.
• These companies dictated not only the supply but also the price of oil and gas.
• It either agrees to cut down the production volume of its member countries during periods of expensive oil or increases its production during periods of inexpensive oil.
• U.S. companies used fracking to open up the Bakken oil fields for production.
• It is headquartered in Vienna, Austria, where the OPEC secretariat, its executive organ, carries out day-to-day business.

Indonesia also left OPEC for the same reason that it wanted to have more control over its production output. Ecuador suspended its OPEC membership from 1992 until 2007 and then withdrew in 2020. Indonesia suspended its membership euro singapore dollar exchange rate history beginning in 2009 and briefly rejoined in 2016 before suspending its membership again that year. Qatar, during a prolonged blockade implemented by other OPEC countries, terminated its membership in January 2019 to focus on natural gas production.

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A recent example would be that of the COVID-19 pandemic in 2020 when disruptions to the global economy in the wake of lockdowns and travel restrictions caused a drastic reduction in oil consumption, and thus prices. The group agreed to reduce production to stabilise prices by reducing supply. Saudi Arabia is by far the largest producer, contributing almost one-third of total OPEC oil production. It is the only member that produces enough on its own materially how to easily buy and invest in bitcoin impact the world’s supply. For this reason, it has more authority and influence than other countries.

More recently, on April 2, 2023, OPEC+ members agreed to cut oil production by 1.2 million b/d until the end of 2023, which is in addition to production cuts already in place. This agreement means production targets will be 3.66 million b/d lower each month relative to actual August 2022 production through the end of 2023. Although these cuts are significant, we expect that growth in non-OPEC oil supply over the next two years will help balance markets and limit any significant increases in oil prices, according to our April Short-Term Energy Outlook. In 2016, largely in response to dramatically falling oil prices driven by significant increases in U.S. shale oil output, OPEC signed an agreement with 10 other oil-producing countries to create what is now known as OPEC+. Among these 10 countries was the world’s third-largest oil producer in 2022, Russia, which produced 13% of the world total (10.3 million barrels per day b/d).

OPEC’s effect on the market

Adam received his master’s in Accumulation distribution indicator economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

OPEC meetings and coordinated production targets have always affected global oil prices, and market participants closely follow them. OPEC and OPEC+ countries combined produced about 59% of global oil production, 48 million b/d in 2022, and so influence global oil market balances and oil prices now more than ever. More recent production agreements have exempted Iran and Libya because of sanctions and other instability in crude oil output. OPEC members will coordinate their collective supplies to influence oil prices by setting production quotas. If oil prices are falling due to excess supply (caused by weak demand or additional production from non-member nations), OPEC will reduce the quotas of its members to cut global oil supplies.

The 13 current members account for 40% of the world’s annual oil production and approximately 79.4% of proven global reserves. The group meets regularly to agree on output targets in an effort to control global oil prices. When prices are higher than $80 a barrel, other countries have the incentive to drill more expensive oil fields. Sure enough, once oil prices got closer to $100 a barrel, it became cost-effective for Canada to explore its shale oil fields.