Why Is OPEC An Important Determinant Of Crude Oil Prices?
The Organization of the Petroleum Exporting Countries, popularly known as the OPEC, is a permanent, intergovernmental organization, established in Iraq in September 1960. The Organization comprises 12 Members namely Algeria, Angola, Ecuador, the Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates (UAE), and Venezuela. The Organization has its headquarters in Vienna, Austria. In the global crude oil market, the OPEC’s goals as an organization is to coordinate and unify the petroleum policies of its member countries to ensure the stabilization of oil markets, while ensuring efficient, and regular supply of its consumers, and a fair return on capital for those investing in the petroleum industry.
Historically, the OPEC has maneuvered its production to stabilize the oil prices in the global markets, even at the expense of losing its market share. However, over the last couple of years, the cartel members have strongly held on to their oil production, despite the ongoing commodity slump in order to retain their market share. In 2015, the organization produced roughly 38.6 million barrels of oil per day (Mbpd), which is 40% of the global oil production, even though the global supply outpaced the global demand during the year. Thus, we figure that the organization has solid reasons to be fighting the rest of the world in the quest to dominate the crude oil market. Below, we present some of the key reasons that we believe drive OPEC’s stance and make the organization a crucial factor in the determination of global oil prices.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for ConocoPhillips
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