What is OPEC?

Preface

When investing in crude oil, do you also often hear about OPEC? So, what is OPEC? How does it affect oil prices?

What is the OPEC?

OPEC’s full English name is Organization of Petroleum Exporting Countries, which is an intergovernmental international organization composed of 13 countries.
Originally founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela at the Baghdad Conference on September 10-14, 1960. Currently, OPEC members are: Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Republic of Congo, Saudi Arabia (the de facto leader), the United Arab Emirates and Venezuela. Former members are: Ecuador, Indonesia and Qatar.

OPEC’s stated mission is to “coordinate and unify the oil policies and prices of its member countries and ensure the stability of the oil market, so as to ensure an efficient, economical and stable supply of oil for oil-consuming countries. Besides that, it also provides oil-producing countries with appropriate respect and stable income and fair remuneration to oil industry investors.”

According to OPEC’s Statute, countries wishing to apply for membership in OPEC need to export a large amount of crude oil. In terms of interests, the objectives are basically similar to those of existing member states. The membership applications require three-quarters of the full membership (including all founding member states’ approval votes). The statute also further stipulates that if its net crude oil exports are not large enough, OPEC can admit it as an member under special conditions stipulated by the General Assembly, .

OPEC+

OPEC+ is composed of OPEC and non-OPEC oil-producing countries (Russia, Mexico, Kazakhstan, Malaysia, Brunei, Amman, Sudan, South Sudan, Bahrain, Azerbaijan). In general, OPEC+ works together to influence global crude oil prices by agreeing on crude oil production quotas.

The impact of OPEC and OPEC+ on the oil market

OPEC is not only responsible for statistical reporting of the crude oil production of the 13 member countries, but also to coordinate the management of crude oil production to ensure that crude oil supply does not exceed market demand. But over the past few decades, Russia and the US have emerged as major energy producers and compete with OPEC for market share.

The production of OPEC countries is extremely important, because the crude oil reserves and production costs of OPEC countries are quite low. When the oil price falls or the market demand decreases, the production cost of crude oil is higher than the oil price, OPEC members will announce production cuts to support oil prices.
In addition, OPEC and OPEC+ have also signed a mechanism to limit crude oil production for stabilizing the oil prices.

Therefore, for the crude oil production increase and reduction agreement, after OPEC+ reaches a consensus at each ministerial supervision meeting, they will control production according to the consensus, for maintaining the oil price moving at a balanced and profitable level.

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