OPEC was founded in 1960 to coordinate the petroleum policies of its members and to provide member states with technical and economic aid. 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, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries. OPEC claims that its members collectively own about four-fifths of the world’s proven petroleum reserves, while they account for two-fifths of world oil production. Members differ in a variety of ways, including the size of oil reserves, geography, religion, and economic and political interests. Some members, such as Kuwait, Saudi Arabia, and the United Arab Emirates, have very large per capita oil reserves; they also are relatively strong financially and thus have considerable flexibility in adjusting their production. Saudi Arabia, which has the second largest reserves and a relatively small (but fast-growing) population, has traditionally played a dominant role in determining overall production and prices.
Working in coordination with additional oil-exporting countries makes the organization even more influential when it comes to international energy prices and the global economy. This group was established in 2016—a time when the economy was seeing significantly low oil prices. The organization is committed to finding ways to ensure that oil prices are stabilized in the international market without any major fluctuations. Doing this helps keep the interests of member nations while ensuring they receive a regular stream of income from an uninterrupted supply of crude oil to other countries. In response, OPEC members—particularly Saudi Arabia and Kuwait—reduced their production levels in the early 1980s in what proved to be a futile effort to defend their posted prices.
OPEC faces considerable challenges from innovation and new, green technology. High oil prices are causing some oil-importing countries to look to unconventional—and cleaner—sources of energy. These alternatives, such as shale production as an alternative https://www.tradebot.online/ energy source, and hybrid and electric cars that reduce the dependence on petroleum products, continue to put pressure on the organization. Having said this, it’s no surprise that any moves the group makes have a big impact on global energy prices.
What is OPEC?
The embargo was a response to the West’s support of Israel during the Yom Kippur War in October 1973. As one area in which OPEC members have been able to cooperate productively over the decades, the organisation has significantly improved the quality and quantity of information available about the international oil market. This is especially helpful for a natural-resource industry whose smooth functioning requires months and years of careful planning. For countries that export petroleum at relatively low volume, their limited negotiating power as OPEC members would not necessarily justify the burdens imposed by OPEC production quotas and membership costs.
The Board of Governors, which is responsible for managing the organization, convening the Conference, and drawing up the annual budget, contains representatives appointed by each member country; its chair is elected to a one-year term by the Conference. OPEC also possesses a Secretariat, headed by a secretary-general appointed by the Conference for a three-year term; the Secretariat includes research and energy-studies divisions. Ecuador suspended its OPEC membership from 1992 until 2007 and then withdrew in 2020. Indonesia suspended its membership beginning in 2009 and briefly rejoined in 2016 before suspending its membership again that year.
International cartel
The result throughout the West was severe oil shortages and spiraling inflation (see oil crisis). As OPEC continued to raise prices through the rest of the decade (prices increased 10-fold from 1973 to 1980), its political and economic power grew. Flush with petrodollars, many OPEC members began large-scale domestic economic and social development programs and invested heavily overseas, particularly in the United States and Europe. OPEC also established an international fund to aid developing countries.
The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. The final goal of OPEC is to adjust the supply of oil to combat surpluses and shortages which, in turn, can help reduce the volatility of oil’s price on international markets. Oil production in Russia remained above 10 million b/d in 2022 despite sanctions in response to its full-scale invasion of Ukraine. Russia’s oil output and effect on the market is significantly greater than that of other OPEC+ countries, such as Mexico and Kazakhstan, so the actions of the OPEC+ agreement are largely driven by coordination between OPEC and Russia.
In response, OPEC attempted to develop a coherent environmental policy. The power of OPEC has waxed and waned since its creation in 1960 and is likely to continue to do so for as long as oil remains a viable energy resource. Because its member countries hold the vast majority of crude oil reserves, the organization has considerable power in these markets. As a cartel, OPEC members have a strong incentive to keep oil prices as high as possible while maintaining their shares of the global market. The term Organization of the Petroleum Exporting Countries (OPEC) refers to a group of 13 of the world’s major oil-exporting nations.
Although the brunt of the production cuts were borne by Saudi Arabia, whose oil revenues shrank by some four-fifths by 1986, the revenues of all producers, including non-OPEC countries, fell by some two-thirds in the same period as the price of oil dropped to less than $10 per barrel. Following Saudi Arabia’s lead, other OPEC members soon decided to maintain production quotas. OPEC meetings and coordinated production targets have always affected global oil prices, and market participants closely follow them.
- 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]).
- Comprehensive data summaries, comparisons, analysis, and projections integrated across all energy sources.
- 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.
- Qatar, during a prolonged blockade implemented by other OPEC countries, terminated its membership in January 2019 to focus on natural gas production.
- Other experts believe that OPEC is an effective cartel, though it has not been equally effective at all times.
During the 1970s the primary goal of OPEC members was to secure complete sovereignty over their petroleum resources. Accordingly, several OPEC members nationalized their oil reserves and altered their contracts with major oil companies. Over the past few years, OPEC+ meetings have focused on reducing oil production to help stabilize oil prices after the COVID-19 pandemic, which dramatically reduced demand and led to significantly lower oil prices. 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.
Market information
The influence of individual OPEC members on the organization and on the oil market usually depends on their levels of reserves and production. Saudi Arabia, which controls about one-third of OPEC’s total oil reserves, plays a leading role in the organization. Other important members are Iran, Iraq, Kuwait, and the United Arab Emirates, whose combined reserves are significantly greater than those of Saudi Arabia. Kuwait, which has a very small population, has shown a willingness to cut production relative to the size of its reserves, whereas Iran and Iraq, both with large and growing populations, have generally produced at high levels relative to reserves. Revolutions and wars have impaired the ability of some OPEC members to maintain high levels of production.
oil production cut
Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in 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.
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The other countries that have joined OPEC since are Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and the Republic of the Congo – bringing OPEC’s membership to 14, as of January 2019. Forms EIA uses to collect energy data including descriptions, links to survey instructions, and additional information. State energy information, including overviews, rankings, data, and analyses. Reserves, production, prices, employment and productivity, distribution, stocks, imports and exports. This means that the country has control over its own production and supply without any interference from the organization. The five founding members are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, while the other full members include Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria, and the United Arab Emirates.
We have not established any official presence on Line messaging platform. Therefore, any accounts claiming to represent IG International on Line are unauthorized and should be considered as fake. 70% of retail client accounts lose money when trading CFDs, with this investment provider. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. The Organization of the Petroleum Exporting Countries describes itself as a permanent intergovernmental organization. The organization is designed to “coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets.” This ensures that there is a steady supply for consumers and regular income for petroleum producers.
His Excellency Mohammad Sanusi Barkindo of Nigeria was appointed to the position for a three-year term of office on June 2, 2016, and was re-elected to another three-year term in July 2019. Approval of a new member country requires agreement by three-quarters of OPEC’s existing members, including all five of the founders.[10] In October 2015, Sudan formally submitted an application to join,[165] but it is not yet a member. The information in this site does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Short, timely articles with graphics on energy, facts, issues, and trends. Tools to customize searches, view specific data sets, study detailed documentation, and access time-series data.