How does OPEC change the oil price?
OPEC aims to control the price of oil by adjusting supply volumes. If its members want to increase the price of oil, they can revise their production quotas downwards to limit supply. Alternatively, if they want to reduce the price of oil, they can raise their production quotas to increase supply. Assuming demand remains constant, the price of oil will move in the intended direction.
Despite OPEC’s best efforts to control the price of oil, there can be occasional short-term price spikes because of global crises.
These include events such as the September 2019 Abqaiq-Khurais attack which struck a Saudi Arabian oil processing facility. The fallout cut Saudi oil production by around half until early October 2019 and caused global oil prices to climb.
Traders may therefore wish to consider other economic data and news sources, in addition to the latest OPEC quotas, before speculating on oil prices.
OPEC meeting format
Ordinary meetings are held twice a year, at the organisation’s headquarters in Vienna. Generally, these meetings are six months apart. Extraordinary meetings – which occur outside of the biannual schedule – can also be arranged for matters that cannot wait until the organisation is next meant to meet.
Decisions are announced via press conference on the day of each meeting, with most decisions becoming effective 30 days later (except where another date is agreed, or the decision is vetoed by a member before it is implemented).
OPEC also publishes monthly and annual oil market reports, as well as an annual world oil outlook report which assesses the long-term prospects for oil.
Which countries are members of OPEC?
When OPEC was formed in 1960, it had five founding members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Since then, the organisation has grown to include 13 member countries (as of June 2020).
Each country is expected to send one or more delegates to each conference meeting, but there must be at least two-thirds in attendance for the meeting to obtain quorum. If a country’s delegation consists of more than one person, they must appoint a head of the delegation. This is usually the country’s oil or energy minister.
Each country has a single vote, and countries must vote unanimously before any change to policy can be implemented. Other countries may attend meetings as observers, but they do not get a vote.
Other major producers – such as Russia, Mexico and Kazakhstan – also sometimes attend OPEC meetings as non-voting observers to coordinate production levels. These countries – particularly Russia – can have a bearing effect on the outcome of OPEC meetings.
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How does the OPEC meeting affect traders?
The OPEC meeting affects traders because oil production quotas for OPEC member states and certain non-voting observers are set during the session. These quotas can have a strong impact on the global supply of oil and influence its price. This is because OPEC members controlled 79.4% of proven crude oil reserves in 2019, and the organisation supplied approximately 44% of the world’s oil. 1
The quotas set at OPEC meetings can also affect demand in other energy markets, including natural gas and heating oil. This makes OPEC meetings important dates in some traders’ calendars.