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Stock Market

Why to Follow OPEC Decisions If You Trade Oil


 

Oil offers many trading opportunities, and smart online investors like to compare the trading conditions offered by various brokers, such as UFX, to take advantage of movements in the price of this vital commodity. In an often-volatile market, one thing that all oil traders agree on is that the OPEC cartel has an out sized influence on value of crude oil.

What is OPEC?

In September 1960, OPEC (the Organization of Petroleum Exporting Countries) was created in Iraq during a meeting. The five founding members were the top oil producing and exporting nations of the time: Iran, Iraq, Kuwait, Venezuela and Saudi Arabia. The organization has since grown and currently includes, in order of accession: Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, and Angola.

What are OPEC’s aims?

OPEC countries produce nearly 40% of the world’s oil, so any decision taken by the organization naturally influences the price of oil. OPEC’s main objective is to ensure stability in the oil market with “fair and stable” prices,meeting international demand while guaranteeing profitability for its members. OPEC increases and decreases oil production as required by these two goals.

OPEC’s important past actions

OPEC has played an important role in numerous geopolitical events. During the 1973 ‘oil crisis,’it significantly reduced oil production,raising prices in order to apply political pressure.In 1979, global production fell after the Iranian revolution, doubling the per barrel price in just twelve months.OPEC increased production to compensate, meeting growing demand from the developed nations. In the decades that followed, increased supply from Russia and the USA lessened OPEC’s dominance, although it remains the single greatest influence on the market.

OPEC’s recent actions

Oil prices increased at the end of 2016, due to a new agreement between OPEC members. For the first time since 2008, the organization agreed to reduce production, and since January, OPEC countries have cut back their total output to 32.5 million barrels per day (bpd).

Some non-OPEC countries have also agreed to joint action on reducing oil production. Current oil market conditions, and especially the medium-term outlook, are not considered strong enough to create price stability,and the decision was taken to cut back on supply in order to reduce volatility. This could have the effect of making U.S. shale oil less economically viable, one of OPEC’s long-term goals.

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Erin Thompson

Erin Thompson spent years managing her own blog about budgeting and debt. Because of that, she has great insights not only about managing spending and borrowing but also about running websites profitably. When she's not writing articles for us, she's traveling and looking for new types of wines to try.
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The content on Cashblog.com is for informational and educational purposes only. It is not financial advice and we are not certified financial advisors. Cashblog.com strives to keep its information accurate and up to date, but it may differ from actual numbers. We may have financial relationships with companies listed on our site. We may receive compensation for the placement of sponsored products or services. We work hard to write authentic and accurate articles.