Role of OPEC in Global Oil Prices Reduction

The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of twelve oil-producing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

• OPEC has twelve member countries: six in the Middle East, four in Africa, and two in South America. Every member of OPEC is a net exporter of Oil.
• Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter again.
• Ecuador joined the organisation in 1973 and left it in 1991, while Gabon, which joined the group in 1975, dissociated with it in 1995. OPEC was formed by Iran, Iraq, Saudi Arabia, Kuwait and Venezuela in Baghdad in 1960. The organisation controls nearly 40 per cent of the international crude oil trade.

OPEC and Global Oil Prices Reduction

OPEC plays very important role in the determination of Global oil prices. OPEC is a swing producer, as this Oligopolistic group is able to increase or decrease commodity supply at minimal additional internal cost, and thus able to influence prices and balance the markets, providing downside protection in the short to middle term. Thus, the decisions of OPEC have had considerable influence on international oil prices. In 1973 energy crisis some OPEC members refused to ship oil to western countries that had supported Israel in the Yom Kippur War, which Israel had fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months in 1973-74. In 1995 the OPEC nations agreed to raise crude oil prices by 10%.

OPEC raises the oil price by agreeing to reduce production. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry. OPEC’s influence on the market has been widely criticized, since it became effective in determining production and prices.