The OPEC World, Mega Crude Oil Producer
The Organisation of Petroleum Exporting Countries - OPEC - is an intergovernmental body set up in 1960 by its founder members, Saudi Arabia, Iran, Kuwait, Iraq and Venezuela.
Just watch or listen to the latest news item about the impact of high commodity prices and the latest crude oil price, and you may well hear OPEC being mentioned.
This is not surprising when the organisation represents countries that between them control about three quarters of global oil reserves. So when a key member of this group speaks, the world sits up.
You can now subscribe to the free Commodity Universe Ezine below, and get the latest articles on the commodity sector . Just your first name and email. It's as easy as 1-2-3! So what exactly are the aims of this influential body? OPEC aims to manage and give strategic direction to the petroleum prices of its Member states and so:
Saudi Arabia (264.2 billion barrels crude oil), Iran (138.4), Kuwait (101.50), Iraq (115.00), Venezuela (87.0), Qatar (27.4), Libya (41.5), UAE (97.8), Algeria (12.3), Nigeria (36.2), Angola (9.0), Ecuador (4.3)
Indonesia had been a member until May 2008. Other countries may join namely Bolivia, Sudan, Syria and Brazil.
Crude Oil Reserves
According to OPEC its share of world petroleum reserves was 77% (922 billion barrels) (2006) with non-OPEC contributing 273bn (23%) barrels.
The largest concentration is in the Middle East where between them, Saudi Arabia, Iran and Iraq hold 56% of the OPEC total (or 43% of world oil reserves).
One major challenge for these producers is maintaining their production levels to meet the growing world demand, especially from the emerging Asian economies.
To achieve this there needs to be significantly more investment in capacity and new refineries which can deal with the predominantly heavy sour crudes produced by these producers.
Modern automobiles now use unleaded gasoline which is a derivative of light sweet crude oil, so increasing production alone will not address this problem.
OPEC and crude oil benchmarks
While ICE Brent crude is considered the world benchmark, given that it is used for pricing about 65% of globally traded oil, the organisation has its own benchmark basket price.
These are: Saharan blend (Algeria), Girassol (Angola), Oriente (Ecuador), Minas (Indonesia), Iran Heavy, Basra Light (Iraq), Kuwait Export, Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine, Arab Light (Saudi Arabia), Murban (UAE), BC17 (Venezuela).
Price differentials between the above basket and NYMEX WTI light crude or ICE Brent crude is not significant.
For example, on Friday 27 June 2008 the basket was $135.31 per barrel, while ICE Brent crude in London was $141.98 and NYMEX WTI was $141.71, a premium for WTI and Brent of about 5% over the basket.
Oil and the US Dollar
The global oil price and sales are quoted in US dollars and so inevitably the value of the dollar will impact on OPEC members’ oil revenues and on their decision on how much petroleum to produce.
And many senior figures of the member states have publicly expressed concerns about the impact the activities of commodity trading speculators have on the price of oil.
Some member states, notably Iran and Venezuela, have started to shift from using the dollar to payment in euros. With the euro strong against the dollar, a long term trend could be developing here.
The Way Ahead
The global economy faces rising commodity prices as well as higher costs for energy including the price of crude oil.
OPEC is well positioned to influence events going forward, given its control of a significant majority of global petroleum reserves.
Meeting the demand of oil consumers, being mindful of the major global climate change challenges, as well as oil capacity investment needs, are likely to be the predominant issues facing this large organisation going forward.
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