For many of us, when we hear the word ‘cartel’ our minds instantly jump to illicit drug rings and smuggling. OPEC, however, is a cartel of a different kind. In fact, it’s the world’s biggest cartel, is entirely legitimate and exerts an extraordinary amount of power and influence on oil prices, globally. What is it? The team here at TriStone Holdings Ltd, a burgeoning UK oil investment company, put together this blog post to explain exactly that.
What Is It?
OPEC stands for the Organization of the Petroleum Exporting Countries consisting of thirteen countries from across the world whose goal is to regulate and coordinate petroleum economics and policies across its member nations. OPEC+ refers to the additional ten oil-exporting countries added back in 2016. The cartel (in its various iterations) has been successful over the years in reducing market competition. Its current member states are as follows:
Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Libya, UAE, Algeria, Nigeria, Gabon, Angola, Equatorial Guinea and Republic of the Congo.
OPEC+ (As Of 2016)
Russia, Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, South Sudan and Sudan.
How Large Are OPEC’s Oil Reserves?
In terms of actual oil reserves, OPEC’s member nations house the majority of the planet’s crude oil. In fact, current estimates have OPEC down as having almost 80% of global reserves – a staggering statistic whichever way you look at it. According to 2018 estimates, the cartel has a total of 1,189.80 billion barrels.
Why Does It Exert Such Influence?
Primarily, because they hold so much of the pie so to speak. That’s to say, they have a huge say in dictating global crude production. Simple supply and demand economics dictate that (and have been borne out in historic oil price charts) when production has been reduced (diminished supply) prices have increased, correspondingly (due to elevated demand).
A big question, of course, is whether the cartel’s influence can go on indefinitely, or whether its star is on the wane? Well, the picture is mixed. There’s an argument that says the cartel’s most influential days are behind it, namely because crude inventories have built up over the years, meaning the economic effects of any production cuts are delayed somewhat. That said, however, you simply can’t underplay the sorts of reserves they still possess; it’s very easy to argue that they’re still the primary driving factor behind global oil prices.
OPEC’s “Big Pandemic Decision” (Production Cuts)
Last year was unlike any the industry (or the rest of the world) had ever seen. Thankfully now consigned to the history books (though, unfortunately, still dealing with it in 2021) 2020 was a disastrous year, to say the least. With oil prices dipping below zero for the first time in history, serious questions were raised about the industry’s future.
Fortunately, OPEC came along (superhero cape not provided) and implemented a huge step in the sector’s safeguarding. What did they do? In order to avert a serious market crash, OPEC took the not-insignificant decision of slashing oil production. The result was a stabilisation of prices that, whilst leaving the market still badly affected compared with recent years, meant it got through to the end of the year in a far better position than it arguably had any right to.
The Cartel’s 2021 Plans
That brings us neatly, then, to today and the state of the cartel in 2021. Well, in one of the more surprising announcements in recent times, Saudi Arabia (one of OPEC’s most powerful members) recently let global markets know that it was planning on making voluntary cuts to its production, leading oil markets to climb by a hefty five percent shortly after.
This decision has been seen by many as something of a New Year’s gift, though more seriously, it reflects the ongoing nature of the pandemic, and the cartel’s commitment to keep the industry as buoyant as possible throughout its duration. Much hinges on the success of the vaccine rollout, globally, and whilst here in the UK it’s easy to get bogged down in the news of another national lockdown, it’s even more important to remember that the national immunisation programme is well underway. We’re not back to normal, but we’re on our way back to it.
There’s still great uncertainty surrounding the pandemic; similarly, there’s still much debate as to whether the United States or OPEC holds more ‘clout’ within the oil industry. The reality, however, is that they’re both immensely important; in all likelihood though, the one couldn’t function without the other, so here’s to the health of both!
If you’d like to find out more about our work as an oil investment company, then get in touch! Contact TriStone Holdings Ltd today on 0800 055 7079 or by emailing us at [email protected]