What is opec

The group was established in and is made up of 13 different oil-producing companies. It holds considerable influence in the marketplace and is often criticized for inflating oil prices to the benefit of its members. But it isn't immune to challenges, notably geopolitical tensions, oversupply and drops in demand, and the adoption of new, green technologies.

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OPEC aims to regulate the supply of oil in order to set the price on the world market. The arrival of fracking technology for natural gas in the U. While OPEC does ensure that there is a steady supply of oil in the global market, it has come under fire for holding considerable power in the industry, which allows it to keep prices as high as possible.

Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. It believes a lower price will drive out U. That price includes exploration and administrative costs. Saudi Arabia has cash reserves to allow it to operate at lower prices. But it is a hardship the country prefers to avoid.

Like other OPEC members, it relies on petrodollars for government revenues. Without OPEC, individual oil-exporting countries would pump as much as possible to maximize national revenue. By competing with each other, they would drive prices even lower.

That would stimulate even more global demand. OPEC countries would run out of their most precious resource that much faster. Instead, OPEC members agree to produce only enough to keep the price high for all members.

As a result, non-OPEC supply increased. OPEC's second goal is to reduce oil price volatility. For maximum efficiency, oil extraction must run 24 hours a day, seven days a week. Closing facilities could physically damage oil installations and even the fields themselves. Ocean drilling is difficult and expensive to shut down. It is then in OPEC's best interests to keep world prices stable. A slight modification in production is often enough to restore price stability.

OPEC responded by agreeing to produce a little more oil. This move brought prices down. OPEC responded by reducing the supply. Its move helped prices to again stabilize. OPEC's third goal is to adjust the world's oil supply in response to shortages. For example, it replaced the oil lost during the Gulf Crisis in Several million barrels of oil per day were cut off when Saddam Hussein's armies destroyed refineries in Kuwait. OPEC also increased production in during the crisis in Libya.

OPEC has 13 active members. Saudi Arabia is by far the largest producer, contributing almost one-third of total OPEC oil production. It is the only member that produces enough on its own materially impact the world's supply. For this reason, it has more authority and influence than other countries. Qatar left in January to focus on natural gas instead of oil. Qatar's departure means the country is aligning itself more with the United States than with Saudi Arabia.

That same year the Saudis and the United Arab Emirates imposed an embargo on Qatar due to border disputes. Indonesia joined in but left in It did not want to cut oil production. In , five OPEC countries allied to regulate the supply and price of oil.

These countries realized they had a nonrenewable resource. If they competed with each other, the price of oil would drop too far. They would run out of the finite commodity sooner than they would if oil prices were higher. OPEC didn't flex its muscle until the oil embargo. It responded to a sudden drop in the U. Since oil contracts are priced in dollars, the revenues of oil exporters fell when the dollar fell. In the s, they increased production to take advantage of OPEC's restraints.

That resulted in low oil prices and profits for everyone. Oil shale producers did not learn that lesson. They kept pumping oil, sending prices plummeting in OPEC did not step in to lower its production. The five Founding Members were later joined by: Qatar — terminated its membership in January ; Indonesia — suspended its membership in January , reactivated it in January , but decided to suspend it again in November ; Libya ; United Arab Emirates ; Algeria ; Nigeria ; Ecuador — suspended its membership in December , reactivated it in October , but decided to withdraw its membership effective 1 January ; Angola ; Gabon - terminated its membership in January but rejoined in July ; Equatorial Guinea ; and Congo This was moved to Vienna, Austria, on September 1, OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.

OPEC developed its collective vision, set up its objectives and established its Secretariat, first in Geneva and then, in , in Vienna. Membership grew to ten by OPEC rose to international prominence during this decade, as its Member Countries took control of their domestic petroleum industries and began to play a greater role in world oil markets. The decade witnessed several impactful events that caused volatility in the global oil market to rise steeply.

OPEC broadened its mandate with the first Summit of Heads of State and Government in Algiers in , which addressed the plight of the poorer nations and called for a new era of cooperation in international relations, in the interests of world economic development and stability. Member Countries embarked on ambitious socio-economic development schemes.

Membership grew to 13 by Demand for energy slumped and oil demand fell in the early part of s, culminating in a market crash in in response to the oil glut and a consumer shift away from hydrocarbons. Environmental issues emerged on the international energy agenda. Timely OPEC action reduced the market impact of Middle East issues in —91, but excessive volatility dominated the decade.