Organization of the Petroleum Exporting Countries (OPEC)

What Is the Organization of the Petroleum Exporting Countries (OPEC)?

The term Organization of the Petroleum Exporting Countries (OPEC) alludes to a group of 13 of the world's major oil-exporting nations. OPEC was established in 1960 to organize the petroleum policies of its members and to furnish member states with technical and economic aid. OPEC is a cartel that expects to deal with the supply of oil with an end goal to set the price of oil on the world market, to keep away from changes that could influence the economies of both delivering and purchasing countries.

Countries that have a place with OPEC incorporate Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela (the five founders), plus Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria, the United Arab Emirates.

Understanding the Organization of the Petroleum Exporting Countries (OPEC)

OPEC, which portrays itself as a permanent intergovernmental organization, was made in Baghdad in September 1960 by establishing members Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The headquarters of the organization are in Vienna, Austria, where the OPEC Secretariat, the executive organ, completes OPEC's everyday business

The chief executive officer of OPEC is its secretary-general. His Excellency Mohammad Sanusi Barkindo of Nigeria was designated to the position for a three-year term of office on Aug. 1, 2016, and was reappointed to an additional three-year term on July 2, 2019.

As indicated by its statutes, OPEC membership is available to any country that is a substantial exporter of oil and shares the goals of the organization. After the five establishing members, OPEC added 11 extra member countries starting around 2019. They are, arranged by joining, as follows:

• Qatar (1961)
• Indonesia (1962)
• Libya (1962)
• United Arab Emirates (1967)
• Algeria (1969)
• Nigeria (1971)
• Ecuador (1973)
• Gabon (1975)
• Angola (2007)
• Tropical Guinea (2017)
• Congo (2018)

Ecuador pulled out from the organization on Jan. 1, 2020. Qatar terminated its membership on Jan. 1, 2019, and Indonesia suspended its membership on Nov. 30, 2016, so starting around 2020 the organization comprises of 13 states.

It is notable that a portion of the world's biggest oil producers, including Russia, China, and the United States, are not members of OPEC, which leaves them free to seek after their own objectives.

A portion of the world's most prominent oil-creating countries, like Russia, China, and the U.S., don't have a place with OPEC.

OPEC's Mission

As per the OPEC website, the group's mission is "to organize and bring together the petroleum policies of its Member Countries and guarantee the stabilization of oil markets to secure an efficient, economic, and ordinary supply of petroleum to consumers, a consistent income to producers, and a fair return on capital for those investing in the petroleum industry."

The organization is committed to finding ways of guaranteeing that oil prices are balanced out in the international market with no major variances. Doing this helps keep the interests of member nations while guaranteeing they receive an ordinary stream of income from a continuous supply of crude oil to different countries.

OPEC perceives the establishing nations as full members. Any country that desires to join and whose application is accepted by the organization is likewise viewed as a full member. These countries must have huge crude petroleum exports. Membership to OPEC is just conceded in the wake of getting a vote from something like three-fourth of its full members. Associate memberships are additionally allowed to countries under special conditions.

74.9%

The percentage of crude oil reserves held by OPEC countries in 2019.

Special Considerations

Oil prices and OPEC's job in the international petroleum market are subject to a number of various factors. The coming of new technology, especially fracking in the United States, affects worldwide oil prices and has diminished OPEC's influence on the markets. Therefore, worldwide oil production increased and prices dropped essentially, leaving OPEC in a fragile position.

OPEC chose to keep up with high production levels and subsequently low prices as of mid-2016, trying to push higher-cost producers out of the market and recover market share. Notwithstanding, starting in January 2019, OPEC reduced output by 1.2 million barrels per day for quite some time due to a concern that an economic slowdown would make a supply excess, expanding the agreement for an extra nine months in July 2019.

Demand for oil dropped during the global crisis, which started in 2020. Producers had an excess in supply with no place to store it, as the world experienced lockdowns cutting down demand. This, alongside a price war among Russia and Saudi Arabia, prompted a drop in oil prices. Accordingly, the organization chose to cut production by 9.7 million barrels each day among May and July 2020. Oil prices kept on encountering volatility, leading OPEC to change production levels to 7.2 million barrels each day as of January 2021.

OPEC faces considerable difficulties from innovation and new, green technology. High oil prices are making some oil-bringing in countries look to flighty — and cleaner — sources of energy. These alternatives, for example, shale production as an alternative energy source, and hybrid and electric cars that reduce the reliance on petroleum products, keep on putting pressure on the organization.

Benefits and Disadvantages of OPEC

There are several benefits of having a cartel like OPEC operating in the crude oil industry. To begin with, it advances cooperation among member nations, assisting them with accomplishing some degree of political threats. Furthermore, on the grounds that the organization's fundamental goal is to settle oil production and prices, applying some influence over production from different nations is able.

OPEC's influence on the market has been widely censured. Since its member countries hold by far most of crude oil reserves (79.4%, as per the OPEC website), the organization has considerable power in these markets. As a cartel, OPEC members have a strong incentive to keep oil prices as high as conceivable while keeping up with their shares of the global market.

The Bottom Line

OPEC is an organization that controls petroleum production, supplies, and prices in the global market. The group was laid out in 1960 and is comprised of 13 different oil-delivering companies. It holds considerable influence in the marketplace and is frequently scrutinized at blowing up oil costs to the benefit of its members. In any case, it isn't resistant to challenges, prominently geopolitical pressures, oversupply and drops in demand, and the adoption of new, green advancements.

Highlights

• While OPEC guarantees that there is a consistent supply of oil in the global market, it has experienced harsh criticism for holding considerable power in the industry, which allows it to keep prices as high as could really be expected.
• OPEC means to manage the supply of oil to set the price on the world market.
• The appearance of fracking technology for natural gas in the U.S. has reduced OPEC's ability to control the world market.
• The Organization of the Petroleum Exporting Countries is a cartel comprising of 13 of the world's major oil-exporting nations.
• The organization was laid out in 1960 by its establishing members Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.

FAQ

What Are the Main Goals of OPEC?

OPEC's fundamental goal is to keep up with oil prices at a profitable level for its members while keeping the market as free as conceivable from limitations. The organization guarantees its members receive a constant flow of income from a continuous supply of oil.

Who Left OPEC?

Countries that left OPEC incorporate Ecuador, which pulled out from the organization in 2020, Qatar, which terminated its membership in 2019, and Indonesia, which suspended its membership in 2016.

What Is OPEC+

In December of 2016, OPEC shaped an alliance with other oil-exporting nations that were not a part of the organization, making an entity that is generally alluded to as OPEC+, or OPEC Plus. Conspicuous members of OPEC+ incorporate Russia, Mexico, and Kazakhstan. Working collaborating with extra oil-exporting countries makes the organization even more compelling with regards to international energy prices and the global economy.

Is the U.S. Part of OPEC?

The United States isn't part of OPEC. This means that the country has control over its own production and supply with no obstruction from the organization.

What Countries Are in OPEC?

OPEC is comprised of 13 member nations. The five establishing members are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, while the other full members incorporate Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria, and United Arab Emirates.

What Does OPEC Do precisely?

OPEC facilitates and unites the policies about petroleum production and output including its member nations. It guarantees a stable oil market that offers petroleum supplies that are both efficient and economic.