The Organization of the Petroleum Exporting Countries OPEC

The Organization of the Petroleum Exporting Countries OPEC

Producers had an overabundance in supply with no place to store it, as the world experienced lockdowns cutting down demand. This, along with a price war between Russia and Saudi Arabia, led to a drop in oil prices. 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.

Internal dissent, the development of alternative energy sources in the West, and Western exploitation of oil sources in non-OPEC countries subsequently combined to reduce the organization’s influence. OPEC countries supply about two-fifths of the world’s oil consumption and possess about two-thirds of the world’s proven oil reserves. More recently, members of OPEC+ agreed to reduce their oil production in 2020 in response to a significant decline in global demand caused by the pandemic. The group cut its production by 9.7 million barrels per day in May 2020.

As the world grapples with the realities of climate change, the role of OPEC is increasingly under scrutiny. Balancing the economic interests of its member countries with the need for climate action is a central challenge. The organisation’s future relevance may hinge on its ability to adapt to the changing energy landscape and contribute constructively to the global transition towards renewable energy. Traditionally, OPEC has emphasised the importance of oil as a critical energy source for global development, advocating for a balanced approach to the renewable energy transition.

  1. Production fell in 2020, as measures to contain the COVID-19 pandemic reduced oil demand, but it has since rebounded.
  2. As the oil supply rose, prices fell from $119.75 in April 2012 to $38.01 in December 2015.
  3. Closing facilities could physically damage oil installations and even the fields themselves.
  4. It steadily brought supplies back online in the months that followed as demand improved and excess inventories burned off.
  5. Reserves, production, prices, employment and productivity, distribution, stocks, imports and exports.

Daniel H. Yergin’s books The Prize and The Quest look at the modern history of the oil and gas industries and their intersection with international politics. This means that the country has control over its own production and supply without any interference from the organization. In 1976, OPEC established the OPEC Fund for International Development.

Angola, which became a member in 2007, announced its withdrawal in 2023. OPEC, multinational organization that was established to coordinate the petroleum policies of its members and to provide member states with technical and economic aid. Several oil companies are getting a jump start on the transition to renewable energy. Our technology helps businesses to tackle their own carbon emissions without incurring a huge cost. The Carbon Management Platform allows companies to manage their CO2 emissions and to take steps to reduce them. Together, our work can elicit the global impact necessary to fight against climate change.

You are unable to access

These countries, with their diverse economic and political backgrounds, are the main players within OPEC, shaping dynamics and working together to stabilise the global oil market while balancing their national interests. President Jimmy Carter tried to raise the specter of OPEC to encourage Americans to reduce fuel consumption. Trump was more explicit, calling OPEC a monopoly and demanding that the cartel reduce prices—a common refrain from presidents who view lower gasoline prices as a sort of tax cut for American drivers. Additionally, Congress has threatened to allow antitrust lawsuits against OPEC and its member states. President Biden has also blamed OPEC for not increasing production fast enough in response to surging oil prices that have contributed to record inflation in the United States. OPEC faces considerable challenges from innovation and new, green technology.

How does OPEC affect the oil market?

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. The term Organization of the Petroleum Exporting Countries (OPEC) refers to a group of 13 of the world’s major oil-exporting nations. 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.

In 2022, Russia’s invasion of Ukraine and harsh sanctions imposed by the West in response have caused global oil prices to surge and renewed attention on OPEC’s role. That March, Biden announced a ban on Russian oil imports, while the European Union (EU) said it will work to reduce its dependence on Russian energy. By that time, global oil prices spiked to their highest level since 2008, at more than $130 per barrel of Brent crude, an international benchmark. Oil prices and OPEC’s role in the international petroleum market are subject to a number of different factors.

Age of Influence

But new technologies have allowed American producers to tap into previously trapped oil at decreasing cost, leading the United States to become the world’s largest oil producer in recent years. Production fell in 2020, as measures to contain the COVID-19 pandemic reduced oil demand, but it has since rebounded. And although Biden has pledged to prohibit new drilling on federal lands, his administration has continued to approve permits at a record pace. OPEC’s worst-ever crisis, according to energy expert Daniel H. Yergin, was Iraq’s 1990 invasion of Kuwait. In his book The Prize, Yergin writes that for the first time “sovereignty and national survival and not merely the price of oil” were at stake.

Member countries work with developing nations and the international community to provide private and trade sector financing and grants to non-member countries. Some of the world’s greatest oil-producing countries, such as Russia, China, and the U.S., do not belong to OPEC. On July 2, 2019, the participating countries endorsed a three-year charter of cooperation, an agreement to promote continued ministerial and technical dialogue. It wants to make sure its members get a reasonable price for their oil. Since oil is a somewhat uniform commodity, most consumers base their buying decisions on nothing other than price.

Following Saudi Arabia’s lead, other OPEC members soon decided to maintain production quotas. 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.

OPEC summary

Prominent members of OPEC+ include Russia, Mexico, and Kazakhstan. 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. OPEC’s membership expanded to 10 countries in 1969 and was an organization that flew under the radar until Arab member countries cut production and banned exports to the United States and the Netherlands.

The invasion removed four million barrels of oil from the world market and caused prices to jump. Other member states feared that Iraq would soon invade Saudi Arabia and leapt into action, rather than remain neutral as they had during the Iran-Iraq War. As a military coalition came together, most of OPEC’s remaining members increased production to compensate for lost output from Kuwaiti candlestick patterns to master forex trading price action and Iraqi oil fields. 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.

To stabilise the fluctuating oil market, OPEC introduced a price band mechanism in 2000. This was a strategy to keep oil prices within a certain range by adjusting oil production levels, demonstrating OPEC’s evolving approach to market management. Vast reserves of U.S. shale oil have not completely insulated American consumers from OPEC-induced price swings. Changes in U.S. production levels are the result of dozens of private energy companies’ independent decisions, and it can take months before consumers feel any adjustments. That means when there are sudden changes in market conditions, OPEC can gain substantial, if brief, market power to influence prices.

This group was established in 2016—a time when the economy was seeing significantly low oil prices. The Organization of the Petroleum Exporting Countries describes itself as a permanent intergovernmental organization. OPEC waited to cut oil production because it didn’t want to see its market share drop further. The cartel toughed it out until many of the shale companies went bankrupt. Despite its power, OPEC cannot completely control the price of oil.