It steadily brought supplies back online in the months that followed as demand improved and excess inventories burned off. OPEC’s actions helped stabilize the global oil market following significant volatility in the early days of the COVID-19 pandemic. The Organization of Petroleum Exporting Countries (OPEC) can significantly affect the global oil market. The intergovernmental organization works together to coordinate and unify the oil production policies of the member nations. OPEC members will adjust their oil supplies based on market conditions and economic goals. During the 1990s OPEC continued to emphasize production quotas.
The Economic Times Business Verticals
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. First off, according to the International Energy Agency, global oil inventories continue to remain elevated. In its market assessment published on May 15, the IEA said inventories rose for a second consecutive month to 7.7 billion barrels in March. OPEC+ in particular is able to tailor “supply and lexatrade demand to balance the market,” Kate Dourian of the Arab Gulf States Institute in Washington, D.C., told BBC News.
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 impact the world’s supply. For this reason, it has more authority and influence than other countries.
1980: Oil crisis and 1980s oil glut
That’s because storing oil at sea is more expensive than on land and a measure of last resort in extreme cases when onshore storage appears to run out. It typically indicates that oil producers are finding it harder to offload their cargoes because of rising supplies or slowing demand or possibly both. However, it is not just higher OPEC+ output and the potential of lower U.S.-Iran tensions that appear to be keeping the market bulls at bay. An uncertain macroeconomic climate and a supply glut exceeding global demand growth, currently in the region of 1 million bpd, are taking their toll too.
As a result, worldwide oil production increased and prices dropped significantly, leaving OPEC in a delicate position. Regulating how much oil a member country can produce effectively means controlling the supply in the global market. Note that supply and demand are two of the factors affecting oil and gas prices. Decreasing price trends prompt the organization to limit the production output of its member countries, thus limiting the supply and preventing further price decreases.
- President Donald Trump decided to postpone tariffs on the European Union to leave room for further trade negotiations.
- 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.
- An intergovernmental organization whose stated objective is to ‘coordinate and unify the petroleum policies of member countries’.
- Despite its power, OPEC cannot completely control the price of oil.
As a result, the organization decided to cut production by 9.7 million barrels per day between May and July 2020. Oil prices continued to experience volatility, leading OPEC to adjust production levels to 7.2 million barrels per day as of January 2021. OPEC decided to maintain high production levels and consequently low prices as of mid-2016, in an attempt to push higher-cost producers out of the market and regain market share. However, starting in January 2019, OPEC reduced output by 1.2 million barrels a day for six months due to a concern that an economic slowdown would create a supply glut, extending the agreement for an additional nine months in July 2019. Collectively, OPEC is gbpaud correlation the largest producer and exporter of crude oil and petroleum products in the world.
OPEC’s decisions have a significant impact on future oil prices, so it’s important to learn how it works. This group was established in 2016, a time when the economy was seeing significantly low oil prices. The influence of individual OPEC members on the organization and on the oil market usually depends on their levels of reserves and production.
Qatar’s departure means the country is aligning itself more with the United States than with Saudi Arabia. U.S. officials stopped Saudi Arabia from invading Qatar in 2017, investigative website The Intercept reported. That same year the Saudis and the United Arab Emirates imposed an embargo on Qatar due to border disputes. OPEC, multinational organization that was established to coordinate the petroleum policies of its members and to provide member states with technical and economic aid.
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. Venezuela, on the other hand, has the largest reserves but produces only a fraction of what Saudi Arabia produces. The Organization of the Petroleum Exporting Countries is undeniably one of the most powerful and influential intergovernmental organizations in the world.
Non-OPEC Oil-Producing Countries
The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Der dow Motley Fool Foundation. The chief executive officer (CEO) of OPEC is its secretary-general. 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. 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.
OPEC+, Countries, Origin, Members, Headquarters
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. As an organization, it flew under the radar until Arab member countries cut production and banned exports to the United States and the Netherlands. The embargo was a response to the West’s support of Israel during the Yom Kippur War in October 1973. A year later, oil prices shot up, causing shortages in the U.S. The OPEC Special Fund was conceived in Algiers, Algeria, in March 1975, and was formally established the following January.
Importance and Influence of the Organization
“With that restraint and discipline ebbing, those oversupply risks appear more likely from mid-2025 through mid-2026 at least.” Justin Klawans has worked as a staff writer at The Week since 2022. He began his career covering local news before joining Newsweek as a breaking news reporter, where he wrote about politics, national and global affairs, business, crime, sports, film, television and other news.
OPEC+ expected to open taps more despite price slump
It is also important to note that part of the specific responsibilities of OPEC to its member countries is to provide technical and economic assistance. The assistance ranges from technology and knowledge transfer to investments in oil production capabilities and relevant infrastructure. Fundamentally, to understand the purpose of OPEC better, it is important to note that this organization is technically a cartel.
- Producers had an overabundance in supply with no place to store it, as the world experienced lockdowns cutting down demand.
- The Organization of the Petroleum Exporting Countries or OPEC is fundamentally a global cartel composed of oil-exporting countries.
- During the 1970s the primary goal of OPEC members was to secure complete sovereignty over their petroleum resources.
- 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.
- It responded to a sudden drop in the U.S. dollar’s value after President Nixon abandoned the gold standard.
Current OPEC members areref Algeria, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. Global oil prices are being kept firmly in check by rising crude inventories and OPEC’s decision to raise oil production. The negotiation of national quotas and arriving at a consensus also represents one of the challenges of OPEC. Saudi Arabia had a hard time convincing other member countries to decide on limits in production output. The country responded to this by slashing its production from 1979 to 1981 and further by flooding the market with cheap oil. In 1960, five OPEC countries allied to regulate the supply and price of oil.
OPEC members coordinate policies on oil prices, production, and related matters at semiannual and special meetings of the OPEC 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. The aim of OPEC is to “coordinate and unify petroleum policies among member countries”.
