Are you interested in trading commodities, such as Oil? If you are – it’s important to know the history of OPEC and its importance to global oil prices.
At the Baghdad Conference, between 10th and 14th September 1960, the Organisation of the Petroleum Exporting Countries (OPEC) was formed.
OPEC was established to ensure that oil producing countries worked together to formulate fair petroleum policies. Specifically, the organisation was created to ensure that oil prices were kept at a fair and stable rate for all producers and investors.
Today, OPEC still performs the same function.
OPEC started with just five members – Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Since 1960, 10 more countries have joined the five founding members.
The first country to join the five founding members was Qatar in 1961. Indonesia and Libya also joined one year later in 1962. Five years later, the United Arab Emirates followed suit. Two years after that, in 1969, Algeria also joined.
In the 1970s, three new members decided to join – Nigeria in 1971, Ecuador in 1973 and Gabon 1975.
No new members joined OPEC until Angola in 2007. A decade later in 2017, Equatorial Guinea decided to join, closely followed by the Republic of the Congo in 2018.
Throughout OPEC’s history, there have been instances where countries have suspended their membership. Most of these suspensions have been caused by production volume quotas. Remember – OPEC member states need to pay annual membership fees and obey OPEC’s rules and regulations.
For instance, Ecuador suspended its membership in 1992 because it wanted to produce more oil than OPEC permitted. In addition, Ecuador didn’t want to pay the annual $2 million membership fee. However, it joined OPEC again in 2007. Similarly, quotas and fees led to Gabon suspending its membership in 1995, before rejoining in 2016.
The only lapsed member of OPEC is Indonesia. It suspended its membership in 2009 as it had become a net importer of oil. Indonesia joined OPEC again in 2016, but suspended its membership later that same year as OPEC introduced a 5% cut in oil production for its members.
OPEC requires unanimous agreement from all of its members to make changes to oil production output. Remember – in 2016, OPEC accounted for 44% of the world’s total oil production.
This means that OPEC’s oil production decisions have a major impact on global supplies of oil.
However, not all OPEC members carry the same weight within the organisation. In other words, the countries that produce the most oil yield the most influence.
At this moment in time, Saudi Arabia produces the most oil by a considerable distance. Due to the volume of oil it produces, many view Saudi Arabia as OPEC’s leading member with considerable decision-making influence.
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