What is OPEC? | CNBC Explains

Summary

OPEC, formed in 1960, influences global oil prices by controlling 40% of production and over 80% of reserves. Despite challenges from rising non-OPEC supplies and renewable energy, OPEC remains significant. Geopolitical events and market forces like the shale oil boom in the U.S. affect oil prices, but OPEC's decisions still play a crucial role, even as the world gradually shifts towards alternative energy sources.

Takeaways

• 🚗 Oil is a crucial component in many everyday products, not just fuel for vehicles.
• 🌐 The Organization of the Petroleum Exporting Countries (OPEC) influences global oil prices by controlling supply.
• 📈 OPEC was established in 1960 to stabilize petroleum markets previously dominated by U.S. companies.
• 🌍 OPEC members currently supply over 40% of the world's crude oil and hold more than 80% of proven reserves.
• 🏙️ Major oil consumers like the U.S. and China can impact oil prices significantly.
• 📉 Non-OPEC countries have increased production, reducing OPEC's market influence.
• 📉 A drop in oil demand in Europe and Asia, along with increased supply, led to a price crash.
• 💸 Venezuela exemplifies the economic impact of oil price fluctuations, with the world's largest reserves but also high inflation.
• 📈 Since 2016, oil prices have been rising due to OPEC-led production cuts and agreements with non-members like Russia.
• 🇺🇸 The U.S. shale oil boom has increased domestic production, yet still relies on substantial oil imports.
• ♻️ High and steady oil supply supports the renewable energy sector as an attractive alternative to fossil fuels.
• 🌍 Geopolitical events can cause oil prices to fluctuate, but supply and demand are the primary determinants.

Q & A

What is the primary role of OPEC?

OPEC's primary role is to monitor the stability and prices of the petroleum market, which was previously determined by U.S. dominated multinational oil companies.

Which countries founded OPEC in 1960?

OPEC was founded in 1960 by Iraq, Kuwait, Iran, Saudi Arabia, and Venezuela.

What percentage of the world's crude oil production does OPEC currently supply?

OPEC member countries supply over 40% of the world's crude oil production.

How much of the world's proven crude oil reserves does OPEC control?

OPEC controls more than 80% of the world's proven crude oil reserves.

Where do OPEC's oil and energy ministers meet and how often?

OPEC's oil and energy ministers meet twice a year in Vienna, Austria.

What is the main criticism against OPEC's collective decisions on oil output?

Critics argue that OPEC's collective decisions on oil output are a way for them to maintain the price they want.

How did China's rapid development in the early 2000s affect the oil price?

China's rapid development in the early 2000s, coupled with a lack of growth in oil production, sent the price of oil shooting up.

What impact did the rise in oil prices have on non-OPEC countries' oil production?

High oil prices made it profitable for non-OPEC countries like the U.S. and Canada to discover harder to extract oil, leading to an increase in their supply levels.

What caused the oil price to crash?

A rise in supply and a reduced demand for oil in Europe and Asia led to the oil price crashing.

How has the shale oil boom in the U.S. affected OPEC's market influence?

The shale oil boom in the U.S., with production levels hitting a record high, has contributed to a decline in OPEC's market influence as the U.S. has increased its oil supply.

What is the significance of OPEC's agreement to cut production in 2016?

In 2016, OPEC members agreed to the first production cut since 2008, reducing output by around one million barrels a day, which was crucial in stabilizing oil prices.

How does the volatility of oil prices affect geopolitical factors?

Geopolitical factors such as the Iran nuclear deal and political threats can cause oil prices to fluctuate, as these events can influence supply and demand.

What is the long-term outlook for OPEC as new sources of energy emerge?

As new sources of energy gradually replace hydrocarbons, the oil industry, including OPEC, faces a race against time, suggesting a potential decline in their long-term relevance.