How Does OPEC Affect Oil Markets?

The Organization of the Petroleum Exporting Countries (OPEC) comprises 11 countries that are involved in the production and export of crude oil products around the world: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Because OPEC’s members collectively hold about 65% of total crude oil reserves and produce 40% of the world’s oil, they have considerable influence on the markets.

Because its members are key players in the global oil markets, any decision taken by OPEC can significantly affect the price of oil globally. One mechanism through which OPEC achieves this influence is through the use of a quota system, in which individual members must follow pre-established production quotas.

OPEC quotas dictate the oil production levels for some of the world’s most important oil producers. But even more important is the actual oil production from each member country, which may differ from the quotas: Some countries, enticed by the high price of crude, are tempted to increase their production to bring in more petrodollars. This is ironic because the production quota is partly responsible for the increased prices, and prices decrease as production increases.

You can keep track of regular developments from OPEC that may affect oil markets through the OPEC Web site. Although OPEC’s influence on the markets has diminished since the 1973 Arab Oil Embargo, it still wields considerable influence over the oil markets