The Role of OPEC+ in Stabilizing Oil Prices

The Organization of the Petroleum Exporting Countries (OPEC) consists of the countries that produce and export the most oil worldwide, founded in 1960. The organization was initially started by Saudi Arabia, Kuwait, Venezuela, Iran, and Iraq, the countries producing the most oil at the time. Now, it includes 13 countries, primarily from Africa and the Middle East.

The organization was founded to coordinate petroleum policies and ensure fair and stable prices for all oil-producing countries. With the addition of 10 other major oil-producing companies, the expanded alliance is called OPEC+. The countries coordinate crude oil production to regulate the commodity’s price worldwide.

OPEC defines its objective as “to coordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry”.

Oil is best known as the fuel used to power transportation and produce energy. However, crude oil has far more uses across various industries. Everything from fertilizers, medicines, clothing, and plastics contains petroleum products derived from crude oil. When prices of crude oil go up or down, it has a significant impact on economies worldwide.

Crude oil is also a popular asset among investors who trade crude oil to generate profits, with oil Contracts for Difference (CFD) contracts being the most popular option. Using the best oil trading platforms can give you the upper hand and make trading this commodity easier and safer. However, understanding how oil markets work is essential to good trading decisions.

Besides knowing oil prices today, you need to understand the factors that lead to changes in its value. This guide will explain the role of OPEC in stabilizing and determining oil prices to help you get useful insights for better oil trading online.

Why Does OPEC Need to Regulate Oil Prices?

Before OPEC came into being, a group of seven multinational companies had complete dominance over the global oil market. OPEC was formed during a time of massive changes in a world that was going through decolonization and several new countries gaining independence. One of the most important aspects for the member countries was to ensure that every oil-producing nation has sovereignty over crude oil and other natural resources to ensure their safety from exploitation.

While over 100 countries produce oil, OPEC members account for around 40% of global production and 60% of exports. Their massive share of the market allows OPEC to influence prices for the commodity worldwide.

How Does OPEC Regulate and Stabilize Oil Prices?

Oil is a finite commodity. Despite the world slowly shifting to greener alternatives for energy and transportation, there is a strong demand for crude oil that will likely remain solid for decades. Due to the high demand for the commodity, major fluctuations in its prices can significantly impact economies. As the top oil producers and exporters, OPEC plays a critical role in managing oil prices and stabilizing them.

OPEC member countries meet regularly and collectively decide how much oil they will produce and sell to global markets. The decision regarding the quantity of oil being sold to international markets has an impact on the supply available at any given time.

Since it is in the interest of their national economies, OPEC member countries tend to keep crude oil prices high. This allows them to enjoy more profitability as oil-producing nations. That said, individual members of the country never actually want to reduce the supply in the market. The more crude oil these countries can sell, the more revenue they can generate. For OPEC+ member countries, the goal is to balance supply and demand.

Granted, oil prices are higher than decades ago. Still, OPEC+ also reduces oil prices occasionally to find a meaningful balance and keep demand high. Russia and Saudi Arabia are two of the biggest producers and can increase production. However, other member nations like Venezuela do not have the same capacity. In 2018, OPEC+ decided to cut oil production to offset the low output by Venezuela.

Geopolitical factors have long impacted oil prices. From the embargo on the US and Israel in 1973 due to the Yom Kippur War to sanctions on Russia by the US and EU since the start of the Ukraine war, reduction and increase in production due to geopolitical tensions also forces OPEC to raise or decrease production.

Oil Trading Platforms to Make Better Trades

Online oil trading platforms are a useful tool for traders who want to make better buy-and-sell decisions, especially with CFDs. Offering the option to enter trades to purchase and sell CFDs, these platforms also offer charts, resources, and other tools to make well-informed trades.

easyMarkets offers a unique trading experience with fixed spreads, negative balance protection, and an easy-to-use platform. It’s ideal for those looking to trade oil-related assets with transparent pricing.

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