Opec: What is it and what is happening to oil prices?

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. 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.

Current OPEC members are[ref] Algeria, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. “Opec+ tailors supply and demand to balance the market,” says Kate Dourian, of the Energy Institute. “It keeps prices high by lowering supplies when the demand for oil slumps.” Opec+ is a group of 23 oil-exporting countries which meets regularly to decide how much crude oil to sell on the world market.

It follows a cut of 1.16 million barrels a day in April, which was voluntarily undertaken by eight members of Opec+, and a group-wide cut of two million barrels a day in October 2022. However, OPEC members are notorious for cheating on their quotas as there is no way to punish violators. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.

Organization and structure

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 Forex Brokers between OPEC and Russia. The percentage of crude oil reserves held by OPEC countries in 2021. 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.

He currently researches and teaches economic sociology and the social plus500 review studies of finance at the Hebrew University in Jerusalem.

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. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances.

1. 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.
2. Those who argue that OPEC is not a cartel emphasize the sovereignty of each member country, the inherent problems of coordinating price and production policies, and the tendency of countries to renege on prior agreements at ministerial meetings.
3. Oil prices continued to experience volatility, leading OPEC to adjust production levels to 7.2 million barrels per day as of January 2021.
4. 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.
5. Most of OPEC's oil production comes from state-run oil companies, making it easier for officials to control output, unlike in the U.S. where companies are the dominant force and make independent production decisions.

OPEC's decisions have a significant impact on future oil prices, so it's important to learn how it works. Other experts believe that OPEC is an effective cartel, though it has not been equally effective at all times. The debate largely centres on semantics and the definition of what constitutes a cartel. Those who argue that OPEC is not a cartel emphasize the sovereignty of each member country, the inherent problems of coordinating price and production policies, and the tendency of countries to renege on prior agreements at ministerial meetings. Those who claim that OPEC is a cartel argue that production costs in the Persian Gulf are generally less than 10 percent of the price charged and that prices would decline toward those costs in the absence of coordination by OPEC.

Membership and organization

And OPEC accounts for 60% of total petroleum traded internationally, according to the U.S. OPEC data also show that it has over 80% of the world's proven oil reserves. OPEC production averaged 32.9 million barrels per day in October 2018, accounting for about 40% of global output vs. 50% in the 1970s.

High prices can encourage oil consumers to reduce dependence on oil by developing local sources and shifting to alternative energy. Most of OPEC's oil production comes from state-run oil companies, making it easier for officials to control output, unlike in the U.S. where companies are the dominant force and make independent production decisions. For the past few years, OPEC has been working with nonmembers like Russia to coordinate production to help support oil prices. 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.

The OPEC Special Fund was conceived in Algiers, Algeria, in March 1975, and was formally established the following January. David Fyfe, of the oil industry research group Argus Media, says that the most recent production cut may force prices above the $80 a barrel mark, but says that they may not rise far beyond that because global demand for oil is weak. Other members of the oil producers' group Opec+ agreed to keep their output levels unchanged, having made cuts of more than one million barrels a day last April. Saudi Arabia has announced it will be cutting its production of crude oil by a million barrels a day to try to boost prices.

OPEC summary

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. Despite its power, OPEC cannot completely control the price of oil. Supply is influenced by exploration, production, and geopolitical influencers that interrupt production and flow of oil from producers to consumers. Demand is dictated by consumers, businesses, and governments based on their needs for energy. The Organization of Petroleum Exporting Countries (OPEC) is an organization of 13 oil-producing countries. In 2019, 79.1% of the world's oil reserves were located in OPEC-member countries.

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. Its share fell because of a 16% increase in U.S. shale oil production. As the oil supply rose, prices fell from $119.75 in April 2012 to $38.01 in December 2015. During the 1990s OPEC continued to emphasize production quotas.

Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela are the founding members. Policy decisions are taken by consensus at its Vienna headquarters. In 1973 OPEC began a series of oil price increases in retaliation for Western support of Israel in the 1973 Arab-Israeli war, and OPEC members’ income greatly increased as a result. 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.

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 questrade forex 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.

1980: oil crisis and 1980s oil glut

In 2016, when oil prices were particularly low, Opec joined forces with 10 other oil producers to create Opec+. Saudi Arabia is the biggest single oil supplier within the group, producing more than 10 million barrels a day. Many non-OPEC members also voluntarily adjust their oil production in response to OPEC's decisions. In the 1990s, they increased production to take advantage of OPEC's restraints.

The cartel toughed it out until many of the shale companies went bankrupt. 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.