Organization of the Petroleum Exporting Countries (OPEC)

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

OPEC is a group of oil-producing countries that collaborate on policies in an attempt to create a unified, and stable oil market.

Table of Contents Table of Contents

1. What is the Organization of the Petroleum Exporting Countries (OPEC)?
2. Key Takeaways
3. History of the OPEC
4. OPEC Member Countries
5. OPEC's Mission
6. What is OPEC+?
7. OPEC's Structure
8. How Does OPEC Affect Oil Prices?
9. OPEC Pros and Cons
10. OPEC Challenges
11. The Bottom Line
12. FAQs
13. References

Show Full Guide

Table of Contents

1. What is the Organization of the Petroleum Exporting Countries (OPEC)?
2. Key Takeaways
3. History of the OPEC
Show Full Guide
4. OPEC Member Countries
5. OPEC's Mission
6. What is OPEC+?
7. OPEC's Structure
8. How Does OPEC Affect Oil Prices?
9. OPEC Pros and Cons
10. OPEC Challenges
11. The Bottom Line
12. FAQs
13. References

History of the OPEC

In 1960, a group of five oil-producing countries (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela) met in Iraq to form an agreement to create a more coordinated oil market with regular supply and price stability. In the decades that followed, more countries from Africa, South America, and the Middle East joined the group.

With more member nations, OPEC’s power over the Brent crude market grew, and it ultimately became the most influential group in the oil market. This power was first shown in 1973, when OPEC cut production, resulting in global oil shortages, later leading to inflation and other negative economic impacts.

OPEC Member Countries

Until the end of 2023, OPEC had thirteen member countries. However, following Angola’s decision to exit the group, there are twelve member nations that remain:

1. Algeria
2. Congo
3. Equatorial Guinea
4. Gabon
5. Iran
6. Iraq
7. Kuwait
8. Libya
9. Nigeria
10. Saudi Arabia
11. United Arab Emirates
12. Venezuela

OPEC’s Mission

According to OPEC itself, the organization’s mission is:

“To coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”

What is OPEC+?

As time passed, OPEC nations recognized that it needed to coordinate on a more global scale in order to achieve its objectives. The result was OPEC+, which added the following countries to its alliance:

• Russia
• Mexico
• Kazakhstan
• Azerbaijan
• Oman
• Malaysia
• Sudan
• South Sudan

OPEC+ has been successful in coordinating production in times of changing demand, managing global crises (like the COVID-19 pandemic), and using its power to create a larger influence on the global energy market.

OPEC’s Structure

How Does OPEC Affect Oil Prices?

OPEC’s biggest lever for impacting oil prices is in setting production quotas for its members. By setting a quota on production output for its member nations, OPEC can collectively choose to increase or decrease the global supply of oil. By cutting production, oil prices will rise, and by increasing production, prices are likely to fall, which can change the supply and demand for the commodity.

OPEC members also have strategic oil reserves that can be utilized to stabilize prices. However, these are often only used in times of crisis.

Lastly, OPEC can choose to change its investment in new oil production, such as expanding the investment into new oil fields. This may not impact the global supply of oil today, but it does influence future oil production which will impact forward-looking investors and speculators who trade the oil market.

OPEC Pros and Cons

OPEC Challenges

Because OPEC is made up of varying countries with different economic incentives and political issues, it can be difficult for the group to come to a consensus when making decisions. It can also be difficult for the organization to enforce supply quotas, and members may even exceed their quotas to maximize their return on investment (ROI).

OPEC also has rising competition outside of its group from shale oil and the global shift toward renewable energy. As climate change policies become more prominent, there is less demand for oil, putting downward pressure on OPEC and its members.

The Bottom Line

OPEC is the world’s largest oil-producing organization that plays a major role in the oil market. According to the OPEC definition and mission, its main goal is to stabilize prices and navigate global crises, which has been made more possible with collaboration from additional countries in OPEC+. However, new policies that limit fossil-fuel output mean that OPEC could have a harder time in the decades to come.

FAQs