What do plastics, clothing, and medicines have in common? They all contain petroleum products derived from crude oil. Although oil’s main use is a fuel used for transportation, it is extremely versatile, making it one of the most important global commodities.
What exactly is ‘OPEC’?
OPEC stands for the Organization of the Petroleum Exporting Countries; this organization is made up of the world’s largest oil-producing countries. In 2016, OPEC partnered with other top oil-exporting nations that were not part of OPEC to form an even larger organization known as OPEC+. The purpose of these countries joining together is to mitigate the price of the essential fossil fuel known as crude oil.
Crude oil is an organic liquid petroleum derived from ancient animal and plant remains. Organisms would become fossil fuels once they had endured heat and pressure for several years under silt and rock. These fossil fuels are then converted into usable products such as gasoline.
Crude oil is a nonrenewable resource, meaning that it can not be replaced naturally at the rate we consume it. Therefore, it is a limited resource, which is why the oil industry is so competitive in extracting oil from different areas.
OPEC’s influence on global oil prices
OPEC+ represents more than half of the world’s oil production; its leaders are Saudi Arabia and Russia, which produce around a colossal 10 million barrels per day of oil each. In 2021, OPEC+ estimated that its member countries accounted for more than 80% of the world’s oil reserves.
Due to the large market demand and share, the decisions OPEC+ makes affect global oil prices. The organization’s member countries meet often to decide how much oil to sell on the international markets. As a result, when they lower the supply, oil prices tend to rise, and they increase the supply, oil prices tend to fall.
Oil prices fell in mid-2020 as countries around the world went into lockdown due ot the COVID-19 pandemic. Since then, OPEC+ members have decided to cut production by 10 million barrels a day, about 10% of total output, to push prices up again.
OPEC’s Latest Move Causes Controversy
A recent global issue affecting oil markets is Russia's war with Ukraine. The European Union and United States sanctions affect the export of Russian crude oil and petroleum products. This has resulted in Russia increasing its oil sales to nations such as China and India, which have not implemented sanctions against Russia, leading to a decline in the overall price of Russian oil.
Marking the biggest reduction in oil production since April 2020, OPEC+ resolved in October to reduce output by 2 million barrels daily. It claims that the action is only driven by "economic factors" and is intended to support the stability and equilibrium of the oil markets. It asserts that all of its members voted unanimously to make the cut.
The choice has drawn harsh criticism from the US. Saudi Arabia-led OPEC has denied that the cuts were imposed for political reasons and would boost Russia's oil revenues. The International Energy Agency, made up of the United States and other oil-consuming nations, stated that the drop in production could mark the ‘tipping point’ that would plunge the world into recession.
Whatever the motivations may be, the recent actions by OPEC+ are a prime example of the group’s power to influence oil prices and the larger global economy.
