November 2014
OPEC
Anyone old enough will
The oil and natural gas industry is chock full of acronyms. One that’s been in the
news recently is OPEC, which stands for the Organization of the Petroleum
Exporting Countries. Formed in 1960, OPEC currently has 12 member countries,
including the Middle East blockbuster oil-producing nations of Iran, Iraq, Kuwait,
Libya, Qatar, Saudi Arabia and the United Arab Emirates, as well as Algeria, Angola,
Ecuador, Nigeria and Venezuela.
OPEC’s mission is “to coordinate and unify the petroleum policies of its Member
Countries and ensure the stabilization of oil markets in order to secure an efficient,
economic and regular supply of petroleum to consumers, a steady income to
producers and a fair return on capital for those investing in the petroleum industry.”
remember the oil crisis of 1973,
when OPEC members
launched an oil embargo in
retaliation against US
involvement in the Arab-Israeli
War. Although the embargo
only targeted five countries –
Canada, Japan, the
In plain language, OPEC sets production targets for its member countries. When
OPEC thinks the global price of oil is rising too high, it asks for increased production,
because more supply typically means lower prices. When crude oil prices are
dropping too low, OPEC calls for production limits (or more stockpiling) which
tightens the worldwide oil market, thereby increasing prices. In theory this policy
should work, because “OPEC's oil exports represent about 60% of the total
petroleum traded internationally.” (Source: US Energy Information Administration)
Netherlands, United Kingdom
and United States – the effects
were felt worldwide. In the six
months of the embargo, the
price of oil quadrupled from
Together, Venezuela and Saudi Arabia still hold
almost 47% of the crude oil reserves within OPEC.
$3 to $12 per barrel.
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Graph: OPEC
However, some experts think that OPEC’s influence over world oil
prices may be diminishing for a number of reasons.

First, OPEC countries aren’t always able or even willing to increase or
decrease production on demand.

Second, the rapid growth of US shale oil production is giving the US its
highest oil output in 30 years, which is affecting overall supply levels.

Third, other non-OPEC countries, such as Canada, Brazil and Mexico, are
striving to produce and ship more oil internationally, which is broadening the
supply base.

Finally, with ongoing successes in oil conservation and substitution, oil
demand has been dropping and is becoming more difficult to forecast.
Because of these and other factors, and despite its members’ enormous oil reserves,
OPEC is gradually losing its once-strong monopoly and is growing less able to control
the global supply – and price – of oil.
Coming up in PatchWorks:
WTI vs. Brent oil pricing
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