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OPEC definition

Forex trading involves risk. Losses can exceed deposits

What is OPEC?

OPEC is the Organization of the Petroleum Exporting Countries. It was founded in 1960 by Saudi Arabia, Venezuela, Iraq, Iran and Kuwait. The other countries that have joined OPEC since are Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and the Republic of the Congo - bringing OPEC's membership to 14, as of January 2019.

For many commentators, OPEC is a cartel in the sense that it regulates the supply of oil in the hope of controlling the price. OPEC does this by holding biannual meetings to set the oil production quotas for its member countries.

In the past, OPEC's dominance over the production of oil meant that the organization was considered to be very powerful. Even today, OPEC member countries control around 80% of the world's proven oil reserves.1 However, the rise of the American fracking industry has raised questions about whether OPEC's control over the price of oil is weakening.

What does OPEC do?

Broadly speaking, OPEC has three main goals. The first is to keep oil prices stable by coordinating its members' oil production through quotas. The theory is that by controlling supply, OPEC will be able to have greater influence over the price of oil on the world market.

The second of OPEC's goals is to reduce oil price volatility, in the hope of making the production and supply of oil as profitable as possible for OPEC members. It also helps to starve off competition from the growing American fracking industry, as well as from non-OPEC and non-OPEC-affiliated countries.

The final goal of OPEC is to adjust the supply of oil to combat surpluses and shortages which, in turn, can help reduce the volatility of oil's price on international markets.

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