In this modern world where we depend mostly on fuel, OPEC is not a stranger. We know the word OPEC relates to petroleum or fuel and that they somehow control the oil prices around the world. This is what people think or understand and It may be true or not, or they may be right or wrong. But today we are going to set the record straight and try to understand a bit what OPEC is and does, why was it created and how it came to be.
Suzzanne Uhland took the time to do a bit of a research on this topic so people can understand and bust some myths or ratify what they already knew. The history is done by decades so it could be better understood and it does not cover problems or controversial issues. It is just an introduction to what OPEC is. Enjoy.
OPEC stands for Organization of the Petroleum Exporting Countries and it has many governments involved in their decisions. It was started in the Baghdad Conference in the year 1960, in September. The members that started the OPEC were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. These were the first 5 and then came Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria, Angola and Gabon. They started in Geneva, Switzerland, but then went to Vienna, Austria to settle down and build their offices.
OPEC does have the job to regulate, co-ordinate and unify all the policies that regulate relations between all the countries that are members. With this, they also affect in good or bad ways the stability of petroleum prices for producers; they try to control fair prices for petroleum consuming nations; and they ensure a good ROI for investors in the industry.
1960, creation and fairness for everybody
As said before OPEC was formed in Baghdad in September 1960 where the geopolitical atmosphere gave us many decolonization processes and the birth of a lot of new countries. There was a clear dominance of what they called the “Seven Sisters” which were many companies and that were separated from the former Soviet Union (FSU) and from other economies. OPEC decided to unify all this and the set up a “Secretariat” that had the objective to design policies that made everything as fair as possible for everyone. In fact, the Declaratory Statement of Petroleum Policy in Member Countries made it very clear that “every country had the inalienable right to exercise permanent sovereignty over their natural resources in the interest of their national development”.
The 1970s, the thing got bigger and more serious.
OPEC went big and international due to the autonomy each country had to control the prices of their own petroleum industries and the voice they had to discuss prices of crude oil on world markets. OPEC launched the first Summit of Heads of State and Government in Algiers in 1975 with the goal of including poorer nations in strategies and agreements and then creating the Fund for International Development. All the countries that were members started to be more social due to this autonomy and gave communities rights over their lands and petroleum. By 175 there were already 23 member countries.
In the 1980s things got bad but relations were widened
Prices started to fall by 1986 and OPEC’s oils capacity just did not make the cut and it caused many problems for all the member countries. OPEC handled the situation very well controlling the amount every country could produce and by including non-OPEC dialogue and cooperation strategies with other countries so there could be a market stability and prices did not go crazy.
Prices were stable and hostilities in the middle east affected OPEC, but they could do some things to help minimize its impact. OPEC started to adjust to the market and saw how the Soviet Union became an important player in the petroleum industry and how many factors such as regionalisms, globalization and technology made the markets shifts towards a more unified group of members. OPEC was part of the all the trend about climate change when they advocated for fairness, balance and realism when it came to oil supply.
From 2000 to 2010 and a little beyond.
In this decade crude oil price went up and down in ways that not even the OPEC was ready for. They did everything they could to minimize impact but it came to the point where oil was seen as an asset class. In the 2008 crisis the prices of oil reached level never ever imagined and then came the economic recession. After 2010 the global economy and stability represented a big risk to the oil market with many social problems in many countries that affected supply and demand. OPEC continued to seek better relationships, engage in dialogue and cooperation with consumers, and non-OPEC producers to balance out the social and unstable situation of each country.
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