Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
OPEC: The Oil Supremacy - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 16, 2011

    OPEC: The Oil Supremacy

    In the previous article, we discussed the categories of Oil producing companies and their emergence. In this article, we talk about Organization of Petroleum Exporting Countries (OPEC) and its function.

    What is OPEC?

    OPEC was created in 1960s with an objective to co-ordinate the petroleum policies for its member nations and to thereby achieve fair and stable prices for oil producers. It is an inter-governmental body consisting of 12 crude oil reserve rich countries. The list includes Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Nigeria, and Libya among others.

    How does OPEC work?

    To achieve its motive, OPEC attempts to regulate the supply and achieve fair return on capital for its members. The members collectively agree on the supply that is required to balance the demand in the market. To decide on the supply levels, the Energy ministers from each member nations meet biannually and consider various factors like inventories, expected demand, and price among others. Once the overall supply is decided, each member nation is allocated a production quota based on its own oil reserves. To reach to this conclusion, the members must agree unanimously on the supply and production quota. This means that Saudi with maximum reserves cannot overrule other country with lower reserve.

    Why is it so influential?

    Around 80% of world’s oil reserves belong to OPEC countries. One-third of world’s oil demand is fulfilled by the production from OPEC countries. The remaining is contributed by non-OPEC countries. However, it is important to note that non-OPEC countries are already operating at full capacity, while the OPEC countries often have spare capacity. The biggest spare capacity resides with Saudi Arabia.

    In effect, OPEC’s decision to supply oil has a significant impact on oil prices. One other parameter that also plays a role in determining the supply of oil is the level of spare capacity with the OPEC countries. Higher spare capacity will create a negative bias on the crude price.

    OPEC always intends to maximize profits for the OPEC countries by adopting proper pricing policies. In 1991, OPEC targeted the oil prices between US$ 22 to US$ 28 per barrel. This was increased to US$ 55 per barrel in 2006 and again revised to US$ 60 per barrel in 2008. After the recovery of Oil prices from the lows of 2009, OPEC has indicated that it will be comfortable to see the Oil price at US$ 70 per barrel.



    Equitymaster requests your view! Post a comment on "OPEC: The Oil Supremacy". Click here!

    2 Responses to "OPEC: The Oil Supremacy"


    Sep 18, 2011

    Nice write up...It will be more helpful if you can publish a chat as to how Barrel Price transalates to per litre petrol price in INR.


    Earl Richards

    Sep 16, 2011

    OPEC, Libya and the laws of supply and demand are not responsible for high gasoline and oil prices. The oil price is dictated by the fraudulent "round-trip" trades of the "dark pool" trading in the Intercontinental Exchange in Atlanta (ICE). The international Big Oil/big banking cabal owns ICE. ICE operates outside of US law. The Commodity Futures Trading Commission has no jurisdiction over ICE, bribed by Big oil. ICE's energy traders and speculators can ratchet-up the oil price anytime they feel like it, for their own profits and on the behalf of Big Oil, through the use of "round-trip" trades. Google the "Global Oil Scam." ICE is a super Enron. Oil is too critical a resource to be controlled and manipulated by greedy refiners, greedy speculators, greedy corporations amd greedy traders.

    Equitymaster requests your view! Post a comment on "OPEC: The Oil Supremacy". Click here!

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 (Close)