How does OPEC change the oil price?
OPEC aims to change 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.
Other major producers also sometimes attend OPEC meetings as non-voting observers to coordinate production levels. For example, in January 2017, several non-members agreed to collude with OPEC to reduce oil production, with further cuts agreed in December 2018.
However, OPEC’s ability to regulate oil prices has subsided this decade due to shifts in global supply and demand. The US has increased domestic shale oil production in recent years, reducing demand for OPEC-produced oil. This has put downward pressure on global prices, even as Chinese consumption has rocketed. However, there have still been occasional short-term price spikes as a result of global crises (eg the Arab Spring in 2011), as uncertainty surrounding future supply drives surges in demand.
Traders may therefore wish to consider other economic data and news sources, in addition to the latest OPEC quotas, before speculating on oil prices.
Find out more on what affects oil prices.