The Influence of OPEC

The Influence of OPEC

The Organization of the Petroleum Exporting Countries, OPEC, was formed in Baghdad, Iraq in 1960 to coordinate and unify the policies of petroleum exporting countries. According to OPEC, their main objective is to ensure the “stabilization of oil prices” and the securing of a steady income to oil producing nations. In order to achieve this objective, the OPEC member nations meet at least bi-annually to decide whether to raise or lower their collective oil production in order to maintain the prices they deem as “stable.” The main factors that are considered when formulating petroleum policy are the forecasts for economic growth rates and the projected demand for petroleum. (www.opec.org)

Exemplary of the importance of OPEC is that the 11 member countries, (with the main contributor being Saudi Arabia), produce about 40% of the world’s crude oil, and account for 55% of the world’s crude oil exports. At the end of 2001, OPEC had reserves of nearly 850 billion barrels of crude oil, which represents nearly 80% of the world total of over 1 trillion barrels. (www.platts.com/features/gasoline) As these numbers indicate, OPEC produces so much oil that they are in a position to exert considerable influence on petroleum supply levels and manipulate the price.

The means by which OPEC exerts its influence is through setting production quotas. OPEC sets individual production quotas for each member country that serve as “production targets” to ensure the level of petroleum supplied by OPEC does not exceed the demand for petroleum. These “production targets” for each country add up to a “ceiling” that OPEC desires not to exceed. In reality however, OPEC countries have traditionally exceeded the proposed ceiling. In October of 2002, OPEC set a ceiling of nearly 22 million barrels to be produced per day by the OPEC 10. However, nearly 25 million barrels were produced, 3 million more than the proposed ceiling. Iraq is not included in the quota system because their exports are controlled by the U.N. based on the “food for oil” program, hence the “OPEC 10” instead of “OPEC 11.” (http://www.eia.doe.gov)

With the majority of OPEC oil coming from Middle Eastern countries, the politics of the Middle East and in particular, the Persian Gulf, have played an important factor in the policies OPEC decides upon despite the fact that OP...

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...educe dependence on imported oil is to reduce dependence on petroleum altogether. And the best way to do this is to increase efficiency and reduce demand of oil.

OPEC still has considerable influence in determining the price per barrel of petroleum by setting quotas, but their best days are behind them. The emergence of non-OPEC exporters such as Canada, Russia, and Mexico have stripped the cartel of its power to single-handedly manipulate the petroleum market. The U.S. has benefited from the increased production of petroleum by non-OPEC nations and thus reduced their annual imports from the OPEC countries in recent years. However, the United States needs to address its obtuse energy policy and accept the fact that oil will not last forever and implement strategies that stress efficiency and will reduce the demand for fossil fuels in general.

Works Cited

(www.eia.doe.gov/mer)- Internet Website

(http://www.nrdc.org/air/energy/fensec.asp)- Internet Website

(www.opec.org)- Internet Website

(www.petroleumworld.com)- Internet Website

(www.platts.com/features/gasoline)- Internet Website

(www.ssc.upenn.edu/polisci/psci260/OPECweb/OPECHIST.HTM)- Internet Website