What is the role and operation of OPEC?
The principal role of OPEC is of course to regulate the production and price per barrel of crude oil by co-ordinating the efforts made by its member countries, notably through its production quotas.
The members of OPEC participate in negotiations with the aim of reaching agreements on the quantity of crude oil to be exported which has a direct influence on the price per barrel of crude oil. It is therefore clear that the decisions reached by OPEC have a significant influence on the price per barrel of crude oil throughout the world.
Therefore, when the crude oil price drops, due to a major decrease in demand for example or a significant rise in reserves then OPEC may decide to reduce the daily production of barrels of its members, with their agreement. This decrease in production can potentially lead to a smaller difference between supply and demand and thus enable the price per barrel of crude oil to recover.
Which are the member countries of OPEC?
Currently we count 14 member countries of the Organisation of Petroleum Exporting Countries, here is the complete list:
- Algeria is a strategically important member of this organisation, it was the first country to nationalise its production in 1971.
- Angola is one of the strongest growing oil producing countries over the last ten years.
- Gabon left OPEC in 1996 but rejoined this organisation in 2016.
- Libya displays a strong oil exploration potential and therefore its position at the heart of OPEC will probably increase, notably since the lifting of western sanctions and if political disputes do not counter this.
- Nigeria has also experienced an increase in production over recent years due to significant developments in its offshore fields but this country tends to regularly overshoot its production quotas. Its petroleum industry is still far from being fully nationalised.
- Equatorial Guinea is the third largest oil producer in Africa, it joined OPEC fairly recently, in 2017 to be exact.
- The Republic of Congo joined the Organisation of Petroleum Exporting Countries in 2018 through solidarity and to benefit from OPEC funds.
- Ecuador originally joined OPEC in 1973 and then left in 1992. It then returned to OPEC membership despite its relatively small production compared with other member countries of this organisation.
- Venezuela which has held a preponderant role at the heart of OPEC by making this organisation a true political weapon. It should be noted that this country is the owner of the largest crude oil reserve in the world, even bigger than Saudi Arabia.
- Saudi Arabia which is the oldest member of OPEC and its historical leader. This country possesses the second largest oil reserves worldwide and is the largest producer and exporter at present on an international level. However, the strategy of Saudi Arabia remains above all based on its reserves as its oil deposits are currently in decline.
- The United Arab Emirates, principally with Abu Dhabi, is a major oil producing country with significant deposits which have been drawn upon for over 30 years now.
- Iraq is no longer really concerned by the quotas since the recent conflicts but it still has some of the largest oil reserves of the OPEC and OPEC+ countries.
- Iran is one of the oldest members of OPEC and makes use of this to express its determination to use oil as a weapon and means of pressure against the United States. However, the oil deposits in Iran are currently in decline.
- Kuwait has the particularity of having most of its oil deposits situated in a single place. This has achieved the peak of its production and the official crude oil reserve figures remain in dispute due to various political changes that have occurred.
OPEC+ and its members:
As we have just noted there are a number of major oil producing countries that are not OPEC members. These notably include Russia, Canada, the Sudan, Mexico, the United Kingdom, Norway, the United States and Oman.
However, to overcome this problem, OPEC associated itself with certain oil producing countries in a more official manner to create an alliance named OPEC+.
It was in fact in 2016 that the OPEC alliance with 10 other oil producing countries was implemented. Since then OPEC+ has united the OPEC countries that we cited earlier with the following countries:
- South Sudan
Of course, the members of OPEC+ are not obliged to respect the decisions taken by OPEC concerning production quotas in particular. However they are entitled to fully participate in this organisation’s discussions and interact more directly with its members depending on the international market conditions. We would for example note that the addition of OPEC+ to OPEC has enabled the resolution of certain litigations at times of crisis and avoided a major price meltdown per barrel on an international level.