The largest producer and most influential member of OPEC is Saudi Arabia, which was the world’s second-largest oil producer in 2022, after the United States. 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.
OPEC was established in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela; its membership has expanded and contracted over the years. OPEC’s founding members not only set out to negotiate higher global posted prices for oil but also pursued greater control over their own resources through the nationalization of international oil company concessions. The Organization of the Petroleum Exporting Countries (OPEC) is a bloc of thirteen oil-rich member states spanning the Middle East, Africa, and South America.
- Analysts predicted the cut would return prices to $70 a barrel by early fall 2019.
- Approval of a new member country requires agreement by three-quarters of OPEC’s existing members, including all five of the founders.17 In October 2015, Sudan formally submitted an application to join,186 but it is not yet a member.
- Saudi Arabia pushed for OPEC+ members to reduce production at a meeting in Vienna in early March.
- 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.
Russia, not an OPEC member, voluntarily agreed to cut production. The Organization of the Petroleum Exporting Countries, also known as OPEC, was formed in 1960 by Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. OPEC regularly meets to set oil production targets and coordinate output to help manage global oil prices for the entire group. There are several advantages of having a cartel like OPEC operating in the crude oil industry.
Production dispute
In 2016, when oil prices were particularly low, Opec joined forces with 10 other oil producers to create Opec+. 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. These cooperating non-OPEC members are Mexico, Norway, Oman, and Russia. In 1960, five OPEC countries allied to regulate the supply and price of oil.
Current member countries
It responded to a sudden drop in the U.S. dollar’s value after President Nixon abandoned the gold standard. Since oil contracts are priced in dollars, the revenues of oil exporters fell when the dollar fell. In response to the embargo, the United States created the Strategic Petroleum Reserve.
In this scenario, there is room for “cheating.” A country won’t go too far over its quota though unless it wants to risk being kicked out of OPEC. 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 why moderna stock is down 25% in recent weeks of careful planning. Qatar left in January 2019 to focus on natural gas instead of oil.
Non-OPEC Oil-Producing Countries
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 2020 Russian-Saudi price war demonstrated the vulnerability of U.S. producers. As the price of oil fell to its lowest point in nearly two decades, it further stressed a U.S. industry already grappling with the effects of the pandemic; at least one major U.S. shale producer, Whiting Petroleum, declared bankruptcy. OPEC members with relatively high breakeven prices, such as Algeria, are also more exposed to sustained low oil prices than Russia or Saudi Arabia, which both have low breakeven prices and significant foreign exchange reserves.
2003: Ample supply and modest disruptions
Each member country abides by an honor system in which everyone agrees to produce a certain amount. If a nation winds up producing more, there is no sanction or penalty. Each country is responsible for reporting its own production.
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. 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 Day trading in a bear market can take months before consumers feel any adjustments.
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. The invasion removed four million barrels of oil from the world market everything you need to know about affiliate onboarding guide 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 and Iraqi oil fields. Its share fell because of a 16% increase in U.S. shale oil production.
Oil analysts do not expect the most recent cut to cause a big rise in world crude prices. Longer term, the advent of electric vehicles that run on renewable energy resources represents an existential threat to OPEC. Jaffe and Morse write that rising fossil fuel costs coupled with government subsidies for renewables have spurred investments in the sector. In the United States, Biden has called for massive investments in clean energy production. And as climate change concerns take center stage in the coming years, OPEC could take a hit. Others were spurred by differences in opinion over strategy and target prices for the cartel.
