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How OPEC affects the price of crude oil?

  • In simple economics, oil prices are affected by supply and demand
  • OPEC+ influences the price of oil by controlling the supply of oil in the world market

The Organization of the Petroleum Exporting Countries (OPEC) is a collective group of oil-producing nations that gives production targets among its member states to effectively manage oil production. OPEC currently include 15 member countries, including Saudi Arabia, United Arab Emirates, Iraq, Venezuela, Nigeria, and Ecuador. Saudi Arabia is generally considered the groups leading force. 

As a collection of oil producing nations, OPEC undoubtedly affects the price of crude oil in the world market. OPEC member countries contribute to around 40% of global oil production but a significantly higher portion of oil traded around the world. The US Energy Information Administration states that OPEC’s oil exports comprise 60% of the amount of petroleum traded worldwide. OPEC’s dominance of globally traded oil is due to the top two oil producing nations in the world, the US and Russia, respectively consume much of the oil that the produce. 

In 2016, the original OPEC allowed the admission of other large oil-exporting countries, creating "OPEC Plus" or simply “OPEC+”. Many economists consider OPEC+ a cartel – meaning a group of manufacturers who collude to keep prices at the levels they want while minimizing the effects of their competitors. 

In simple economics, prices are affected by supply and demand. Without considering other factors, when demand is high and supply is low, prices increase, and vice versa. OPEC+ influences the price of oil by controlling the supply of oil in the world market. Even announcements from OPEC+ regarding production cuts or hikes could affect oil prices, as these announcements would influence other countries to stockpile or consume oil – which in turn causes prices to fluctuate. 

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