The most recent OPEC conference took place on 8 March 2006 in Vienna. As anticipated, it has been decided to maintain the current OPEC production ceiling of 28 million barrels per day despite the volatility of crude oil prices which OPEC assert are driven by "geopolitical factors and associated concerns regarding potential future supply disruptions, as well as downstream bottlenecks".
The purpose of this twice yearly meeting is to allow the member countries to review the current status of the international oil market and the forecasts for the future in order that they may agree upon appropriate actions which will promote stability in the oil market.
The reason that OPEC conferences invariably manage to hit the headlines is because the member countries conclude each conference with a decision on whether or not to alter petroleum production levels from the member countries. This matching of oil production to demand by way of quotas is the principal way in which OPEC can control the crude oil price.
OPEC has not been responsible for setting crude oil prices since the mid 1980s. OPEC member countries do however voluntarily restrain their crude oil production in order to stabilise the oil market thereby avoiding harmful and unnecessary price fluctuations. It is claimed that this is not the same as setting prices.
The price of crude oil is set by movements on three major investment petroleum exchanges, namely the New York Mercantile Exchange, the International Petroleum Exchange in London and the Singapore International Monetary Exchange.
OPEC is a permanent introgovernmental organisation created in 1960 at the Baghdad Conference by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
Since then eight more members have joined: Qatar; Indonesia; United Arab Emirates, Nigeria, Algeria, Ecuador; Gabon; and Socialist Peoples Libyan Arab Jamahiriya.
The common denominator is that the member countries are developing countries for whom oil is the main marketable commodity and foreign exchange earner.
The current OPEC Conference President and Secretary General is Dr Edmund Maduabebe Daukoru who is Minister of State for Petroleum Resources of Nigeria.
OPEC’s principal objectives are as follows:
- to coordinate & unify the petroleum policies of member countries and to determine the best means for safeguarding their individual and collective interests;
- to seek ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; and
- to provide an efficient economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the petroleum industry
Each member country has one vote and they operate on the principle of unanimity.
The OPEC countries produce around 40% of the oil traded internationally (expected to rise to 50% over next 25 years) and as such, any decision to increase or reduce production may lower or increase the price of crude oil.
In the past OPEC have been criticised for failing to act in times of high oil prices. However OPEC's response normally points out that the price rise is due to refining bottlenecks and other factors as opposed to lack of supply. In addition there are many factors which can affect the pump price including the high taxes endured by the UK market.