What is OPEC and how does it influence oil prices?

OPEC and its influence on oil prices

The Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental organization, established at Baghdad Conference by the first five members (Saudi Arabia, Iraq, Venezuela and Iran), and headquartered since 1965 in Vienna. This article will focus on OPEC and its recent attempt to influence oil price.

OPEC’s main goal is to unify and co-ordinate petroleum policies among its current member countries (six in Middle East, five in Africa, and two in South America) in order to preserve stable and reasonable prices for petroleum.

OPEC has an important influence on oil price. For a long period of time, its ability to move the price of oil is quite limited; this is because each country has different stimulus than OPEC itself. One of the examples is OPEC countries and OPEC is unhappy with the oil price, it’s in their best interest to trim the supply of oil so prices will rise.

This has made to new non-OPEC reserves that marked OPEC’s ability to influence oil price, which results a consequent crash with prices.

OPEC’s monetary policies

OPEC’s monetary policies continue to have a significant impact on the global economy and previous efforts by some non-OPEC and OPEC producers to balance the oil market may be supportive for a establishment of monetary policies by major central banks.

OPEC cheating on costs may influence global oil prices

According to S&P Global Platts In January 2017, OPEC managed to trim about 90 percent out of the 1.2 million barrels it promised to take out from the market last year. Those attempts have helped preserve the price of oil worldwide above $50 per barrel.

With OPEC members having a long history of cheating on quotas, they will most likely disregard the agreed-upon cuts as the summer driving season drives prices higher.


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