Navigating oil production and global impact

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia are collectively known as OPEC+ and will meet on June 2 to discuss their joint oil production policies. Below are the key facts about OPEC+ and its role.

WHAT ARE OPEC AND OPEC+? OPEC was founded in Baghdad in 1960 by Iraq, Iran, Kuwait, Saudi Arabia and Venezuela with the aim of coordinating oil policy and ensuring fair and stable prices. Now it includes twelve countries, mainly from the Middle East and Africa, which account for about 30% of the world’s oil.

There have been some problems with OPEC’s influence over the years, which have often led to internal divisions. More recently, the global push for cleaner energy sources and a move away from fossil fuels could ultimately reduce its dominance. OPEC formed the so-called OPEC+ coalition at the end of 2016 with ten of the world’s most important non-OPEC oil exporters, including Russia.

OPEC+ crude production represents approximately 41% of global oil production. The group’s main objective is to regulate the supply of oil to the global market. The leaders are Saudi Arabia and Russia, which produce 9 million and 9.3 million barrels of oil per day (bpd), respectively. Angola, which joined OPEC in 2007, left the bloc early this year, citing disagreements over production levels. Ecuador left OPEC in 2020 and Qatar in 2019.

HOW DOES OPEC AFFECT GLOBAL OIL PRICES? OPEC says its member countries’ exports account for about 49% of global crude oil exports. OPEC estimates that its member states possess approximately 80% of the world’s proven oil reserves.

Due to its large market share, OPEC’s decisions can influence global oil prices. Its members meet regularly to decide how much oil to sell on world markets. As a result, oil prices tend to rise when they reduce supply in response to falling demand. Prices tend to fall when the group decides to supply more oil to the market.

The OPEC+ group is currently cutting production by 5.86 million barrels per day, equivalent to about 5.7% of global demand. The cuts include 3.66 million barrels per day by OPEC+ members through the end of 2024. Another 2.2 million barrels per day of voluntary cuts by some members expire at the end of June.

A decision could be taken at the June 2 meeting to extend the voluntary cuts for several months, sources told Reuters. The voluntary cuts are led by Saudi Arabia, with a cut of 1 million barrels per day.

Despite deep production cuts, Brent crude prices are trading at around their lowest level this year at $81 a barrel, down from a peak of $91 in April, pressured by high stock prices and concerns about global demand growth. HOW DO OPEC DECISIONS AFFECT THE WORLD ECONOMY?

Some of the producer group’s cuts have had significant impacts on the global economy. During the 1973 Arab-Israeli War, Arab members of OPEC imposed an embargo on the United States in retaliation for its decision to supply the Israeli military and other countries that supported Israel. The embargo banned oil exports to those countries and led to cuts in oil production.

The oil embargo put pressure on the already stressed American economy, which had become dependent on imported oil. Oil prices rose, causing high fuel costs for consumers and fuel shortages in the United States. The embargo also brought the United States and other countries to the brink of a global recession. In 2020, crude oil prices fell amid COVID-19 lockdowns around the world. Following that development, OPEC+ cut oil production by 10 million barrels per day, equivalent to about 10% of global production, in an effort to boost prices.

Gasoline prices are a key political issue in the United States, which is facing a presidential election this year, and have prompted Washington to repeatedly call on OPEC+ to release more oil. OPEC says its job is to regulate supply and demand, rather than prices. The group’s members are heavily dependent on oil revenues, with Saudi Arabia’s budget teetering on an oil price of between $90 and $100 per barrel, according to various estimates.

CAPACITY DILEMMA In addition to production cuts, OPEC+ will debate its members’ production capacity figures this year – a historically contentious issue.

The group has commissioned three independent companies – IHS, WoodMac and Rystad – to assess the production capacity of all OPEC+ members by the end of June. Capacity estimates help OPEC+ establish baseline production figures on which to base cuts.

Member states tend to fight for higher capacity estimates to achieve a higher output level and end up with higher production quotas after cuts are applied, and thus ultimately higher revenues. The need for new quotas comes as members such as the United Arab Emirates and Iraq are expanding production capacity, while OPEC’s largest producer, Saudi Arabia, has scaled back additions to its production potential.

OPEC+ member Russia has actually seen its production capacity shrink due to the war in Ukraine and Western sanctions. WHICH COUNTRIES ARE OPEC MEMBERS?

The current members of OPEC are: Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, Iran, Algeria, Libya, Nigeria, Congo, Equatorial Guinea, Gabon and Venezuela. Non-OPEC countries in the OPEC+ global alliance are represented by Russia, Azerbaijan, Kazakhstan, Bahrain, Brunei, Malaysia, Mexico, Oman, South Sudan and Sudan.

Sources: Reuters News, World Economic Forum website, OPEC website, US Department of State website

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)