OPEC members collectively produced 42.8 million barrels of oil per day in 2024, accounting for 38% of the world’s oil supply. Its largest producer is Saudi Arabia, the second-biggest in the world behind the U.S. Because OPEC controls so much global production capacity, it has a lot of influence on the global oil market. 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.
present: Global energy crisis
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 the largest producer and exporter of crude oil and petroleum products in the world. Having said this, it’s no surprise that any moves the group makes have a big impact on global energy prices. Oil prices can drop significantly if they decide to supply more oil to the market. On the other hand, if OPEC member countries decide to cut production and curb supplies, prices are highly likely to shoot up.
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. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance.
Despite these developments, OPEC has not yet fully embraced the transition to green energy. The organisation’s core activities continue to focus on oil production and market stabilisation, with less emphasis on leading or innovating in 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. This stance often involves highlighting the need for energy security and economic stability alongside environmental considerations. However, critics argue that this position significantly slows down the global shift towards renewable energy sources. But it has come under fire not only for its demonstrated power and influence but also for its decisions in the past, as blackbull markets review well as its failures and limitations.
Organization of the Petroleum Exporting Countries (OPEC)
Qatar, during a prolonged blockade implemented by other OPEC countries, terminated its membership in January 2019 to focus on natural gas production. Angola, which became a member in 2007, announced its withdrawal in 2023. As the world increasingly moves towards renewable energy and addresses the urgency of climate change, the future of the Organization of the Petroleum Exporting Countries (OPEC) is at a crossroads. The shift from fossil fuels poses a fundamental challenge to OPEC, whose member countries have long relied on oil as their primary economic driver. 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.
Instead, it allowed prices to fall to maintain its own market share. Opec member states currently produce about 40 per cent of the world’s crude oil and 18 per cent of its natural gas. By its own reckoning, at the end of 2013, Opec states had proven oil reserves representing almost 81% of the world total, with the bulk of the reserves (66%) in the Middle East.
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. The OPEC Special Fund was conceived in Algiers, Algeria, in March 1975, and was formally established the following January. The Oil and Energy Ministers from the OPEC members meet at least twice a year to coordinate cloud stocks their oil production policies.
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. The group will reduce its collective supplies when demand is weak or if non-members are producing too much oil to stabilize prices. Meanwhile, it will maintain additional production capacity to increase supplies when needed to prevent prices from rising too high and damaging demand. As a result, many went below their break-even price of $65 a barrel.
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1960: Anger from exporting countries
Anti-OPEC sentiment has been so high among U.S. lawmakers that they sought to pass laws to limit the sovereign immunity of OPEC members and bring them under the sphere of Federal laws regulating competition. In a historic move, OPEC and non-OPEC oil-producing countries, including Russia, collaborated to address the global oil surplus by agreeing to production cuts. This cooperation, often referred to as OPEC+ represented a significant expansion of OPEC’s influence and strategy in the global oil market. Triggered by a combination of factors, including the U.S. shale oil boom and weakened global demand, oil prices sharply fell in 2014. OPEC initially maintained production levels, leading to an oversupply. This decision marked a strategic shift in OPEC’s approach, prioritising market share over stabilising prices.
These cooperating non-OPEC members are Mexico, Norway, Oman, and Russia. OPEC’s third goal is to become the world’s oil supply swing producer. This would involve responding to shortages or surpluses by increasing or decreasing supply as needed—effectually achieving its first two goals of controlling price stability and volatility. For example, it replaced the oil lost during the Gulf Crisis in 1990.
The backdrop to OPEC’s formation was a world where Western oil companies, notably the ‘Seven Sisters,’ had a stronghold on the oil industry. These companies, primarily from the US and Europe, dictated terms that increasingly didn’t sit well with oil-producing nations. In a move that would reshape global oil politics, these oil-producing countries established OPEC as a counterbalance, aiming to take control of their oil reserves and secure a fairer share of the oil revenue. The Organization of the Petroleum Exporting Countries (OPEC) plays a pivotal role in the global oil market.
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- It is interesting to note that some of the world’s biggest oil-producing countries are not part of OPEC.
- 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.
- Without the control of the market, OPEC has to compete with non-OPEC nations such as Canada, U.S, Norway, Mexico, Brazil and others.
- It has expanded from its five founding countries to a membership of 12.
- 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.
Its creation represented a significant shift towards more balanced oil trade negotiations, empowering member nations to have a greater say in the pricing of their oil exports. However, achieving this unified stance came with challenges, given the different political and economic interests represented within its membership. OPEC was created in 1960 with five key founding members – Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Their partnership represents a strategic alliance of nations rich in oil, determined to coordinate and unify petroleum policies amongst member states in order to secure fair and stable prices for petroleum producers. It was in 1949 when Iran and Venezuela took the first initiative to establish strong international cooperation among producers and exporters of hydrocarbons. These countries invited Iraq, Kuwait, and Saudi Arabia to tackle the upcoming demand for oil and gas following the recovery of global economies from the Second World War.
- The assistance ranges from technology and knowledge transfer to investments in oil production capabilities and relevant infrastructure.
- Former President Donald Trump, for example, called OPEC “a monopoly” and demanded a reduction in prices.
- The negotiation of national quotas and arriving at a consensus also represents one of the challenges of OPEC.
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- The Organization of the Petroleum Exporting Countries (OPEC) describes itself as a permanent intergovernmental organization.
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. 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.
Those of you who are old enough to remember the 1973 crisis may remember the long lineups at the gas pumps and the signs at many gas stations telling people that their supplies were all gone. Another crisis arose in 1979 after a revolution in the oil-rich country of Iran led to a big spike in the price of crude. By this time, the rest of the world, and the U.S. in particular, was heavily dependent on foreign oil, which largely came from members of OPEC. Beginning in earnest in the 1980s, OPEC began setting production targets for its member countries. Reduced targets and production have the general tendency to increase prices.
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OPEC was trying to ensure a fair price for their exported oil and a steady supply to the market.2 These countries also have a fair amount of natural gas reserves as well. Because natural gas is harder to ship overseas, the oil has the bigger political infulence. Because its member countries Fomc meeting calendar 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. “OPEC+ member countries collectively agree on how much oil to produce, which directly affects the ready supply of crude oil in the global market at any given time,” Investopedia, which examined the organization’s influence in more detail, reports. OPEC naturally keeps the market price of oil high in order to maximize its profits, as was seen when the organization slashed production in early April to just 3.7 percent of the global demand, Reuters notes.