How Does OPEC Control the Price of Oil?

Introduction to Oil Trading

The Organization of the Petroleum Exporting Countries, also called OPEC, is an intergovernmental organization created in the 1960s to coordinate oil production, prices, and policy among its members. Today, OPEC comprises 14 member countries whose primary goal is to ensure the stability of the global oil market, ostensibly balancing the needs of both producers and consumers.

Most people in the oil trading business know that OPEC’s decision making can influence the price that is sold for oil on the market today. Their impacts on worldwide affairs not only affect the profit making of companies involved in the oil industry, but transportation, agriculture and manufacturing sectors as well.

For companies trading in the commodity, they can take advantage of oil price swings by using online commodity trading brokers, which allow them to openly buy and sell positions; depending on weather their market outlook is bearish or bullish of course. UFX’s trading platform is a large platform operating in the entire online trading industry. Its advanced trading tools and charts provide savvy traders with real-time access to the most important commodities, thus, allowing them to trade during the best conditions.

How does OPEC Control Oil Prices?

One of the most powerful tools that OPEC has on the oil market is production cuts. By slashing output through production quotas for member countries can trigger direct impacts on worldwide levels of oil production and oil prices. The first formal production agreement by OPEC members was back in 1982, when its 13 members decided to cut their daily production by about 700,000 barrels to achieve a maximum total output of 17.5 million barrels per day.

Last November, OPEC members and non-members alike decided to reduce oil production to deal with strong “imbalance and volatility” in the global market. The organization decided that from January 1st 2017, output would be reduced by about 1.2 million barrels per day to set a maximum of 32.5 million barrels per day. The initial agreement was to last 6 months, but it was later extended for another 6 months. Now investors are awaiting more information about a possible second extension of the agreement, or a gentle “tapering” of production.

The short-term impact of OPEC’s decision could be quite significant, but over the long-term, it will become harder for the organization to continue to shape the global economy. Other important factors are now in play, such as rapidly rising shale oil production from the U.S. and reducing the impact of OPEC’s efforts.