Organization of the Petroleum Exporting Countries, OPEC

OPEC is an international Organization of eleven developing countries which are heavily reliant on oil revenues as their main source of income. Membership is open to any country which is a substantial net exporter of oil and which shares the ideals of the Organization. The current Members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

Since oil revenues are so vital for the economic development of these nations, they aim to bring stability and harmony to the oil market by adjusting their oil output to help ensure a balance between supply and demand. Twice a year, or more frequently if required, the Oil and Energy Ministers of the OPEC Members meet to decide on the Organization's output level, and consider whether any action to adjust output is necessary in the light of recent and anticipated oil market developments.

OPEC's eleven Members collectively supply about 40 per cent of the world's oil output, and possess more than three-quarters of the world's total proven crude oil reserves. More details can be found in the FAQ on OPEC, and in the sections on the individual Member Countries, which feature tables with selected oil, gas and economic data.


FAQs about OPEC

What is OPEC?

OPEC is an international Organization of 11 oil-exporting developing nations that co-ordinates and unifies the petroleum policies of its Member Countries. OPEC seeks to ensure the stabilization of oil prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations, due regard being given at all times to the interests of oil-producing nations and to the necessity of securing a steady income for them; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on their capital to those investing in the petroleum industry.

When was OPEC formed?

OPEC was formed at a meeting held on September 14, 1960 in Baghdad, Iraq, by five Founder Members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. OPEC was registered with the United Nations Secretariat on November 6, 1962 (UN Resolution No 6363).

Who are the OPEC Member Countries?

The OPEC Statute stipulates that: "any country with a substantial net export of crude petroleum, which has fundamentally similar interests to those of Member Countries, may become a Full Member of the Organization, if accepted by a majority of three-fourths of Full Members, including the concurring votes of all Founder Members". The Statute further distinguishes between three categories of membership: Founder Member, Full Member and Associate Member. Founder Members of the Organization are those countries which were represented at OPEC's first Conference, held in Baghdad, Iraq, in September 1960, and which signed the original agreement establishing OPEC. Full Members are the Founder Members, plus those countries whose applications for membership have been accepted by the Conference. An Associate Member is a country which does not qualify for full membership, but which is nevertheless admitted under such special conditions as may be prescribed by the Conference.

Click for more detailed information on the OPEC Member Countries.

There are currently 11 OPEC Member Countries:

Country Joined OPEC Location
Algeria 1969 Africa
Indonesia 1962 Asia
IR Iran 1960* Middle East
Iraq 1960* Middle East
Kuwait 1960* Middle East
SP Libyan AJ 1962 Africa
Nigeria 1971 Africa
Qatar 1961 Middle East
Saudi Arabia 1960* Middle East
United Arab Emirates 1967 Middle East
Venezuela 1960* South America
* Founder Members

How does OPEC function?

Representatives of OPEC Member Countries (Heads of Delegation) meet at the OPEC Conference to co-ordinate and unify their petroleum policies in order to promote stability and harmony in the oil market. They are supported in this by the OPEC Secretariat, directed by the Board of Governors and run by the Secretary General, and by various bodies including the Economic Commission and the Ministerial Monitoring Committee.

The Member Countries consider the current situation and forecasts of market fundamentals, such as economic growth rates and petroleum demand and supply scenarios. They then consider what, if any, changes they might make in their petroleum policies. For example, in previous Conferences the Member Countries have decided variously to raise or lower their collective oil production in order to maintain stable prices and steady supplies to consumers in the short, medium and longer term.

What is the OPEC Conference?

The Conference is the supreme authority of the Organization, and consists of delegations normally headed by Their Excellencies the Ministers of Oil, Mines and Energy of Member Countries. The Conference generally meets twice a year, in March and September, and in extraordinary sessions whenever required. It operates on the principle of unanimity and one Member, one vote. It is responsible for the formulation of the general policy of the Organization and the determination of the appropriate ways and means of its implementation.

The Conference also decides upon applications for membership of the Organization, and on reports and recommendations submitted by the Board of Governors on the affairs of the Organization. It approves the appointment of Governors from each Member Country and elects the Chairman of the Board. Moreover, the Conference directs the Board to submit reports or make recommendations on any matter of interest to the Organization, and considers and decides upon the Organizationís budget, as submitted to it by the Board.

Who are the Heads of Delegation?

The Heads of Delegation to OPEC are the official representatives of each Member Country to the OPEC Conference. They are therefore normally Their Excellencies the Ministers of Oil, Mines and Energy of Member Countries.

What is the Board of Governors?

The Board of Governors, or BoG, can be compared to the board of directors of a commercial organization. The BoG is composed of Governors nominated by Member Countries and confirmed by the Conference for two years. The Board directs the management of the Organization; implements Resolutions of the Conference; draws up the Organizationís annual budget and submits it to the Conference for approval. It also decides upon any reports submitted by the Secretary General and submits reports and recommendations to the Conference on the affairs of the Organization.

The role of the Board of Governors is discussed in Article 20 of the OPEC Statute (below).

"The Board of Governors shall:

  1. Direct the management of the affairs of the Organization and the implementation of the decisions of the Conference;
  2. Consider and decide upon any reports submitted by the Secretary General;
  3. Submit reports and make recommendations to the Conference on the affairs of the Organization;
  4. Draw up the Budget of the Organization for each calendar year and submit it to the Conference for approval;
  5. Nominate the Auditor of the Organization for a duration of one year;
  6. Consider the Statement of Accounts and the Auditor's Report and submit them to the Conference for approval;
  7. Approve the appointment of Directors of Divisions and Heads of Departments, upon nomination by Member Countries, due consideration being given to the recommendations of the Secretary General;
  8. Convene an Extraordinary Meeting of the Conference; and
  9. Prepare the Agenda for the Conference.

What is the Economic Commission?

The Economic Commission is a specialized body operating within the framework of the Secretariat, with a view to assisting the Organization in promoting stability in the international oil market. The Commission is composed of a Commission Board, National Representatives, and a Commission staff. The Commission Board consists of the Secretary General, the National Representatives appointed by the Member Countries, and a Commission Co-ordinator (who is ex-officio the Director of the Research Division).

What is the Ministerial Monitoring Committee?

The Ministerial Monitoring Committee (MMC) was established in March 1982 by the 63rd (Extraordinary) Meeting of the Conference. The MMC is chaired by the President of the Conference and comprises all the Heads of Delegation. The MMC meets periodically to monitor the market situation and to recommend to the Conference any measures that might be taken.

What is the Ministerial Monitoring Sub-Committee?

The Ministerial Monitoring Sub-Committee (MMSC) was established in February 1993 by the 10th Meeting of the Ministerial Monitoring Committee in order to monitor oil production and exports by Member Countries. The MMSC comprises three Heads of Delegation and the Secretary General.

What is the OPEC Secretariat?

The OPEC Secretariat functions as the Headquarters of OPEC. It is responsible for carrying out the executive functions of the Organization, in accordance with the provisions of the Statute and under the direction of the Board.

The Secretariat consists of the Secretary General, and the Research Division headed by the Director of Research, and comprising the Petroleum Market Analysis, Energy Studies and Data Services Departments. Other functions include the PR & Information Department, the Administration & Human Resources Department, and the Office of the Secretary General.

The Secretariat was originally established in Geneva, Switzerland, in 1961 but it was moved to Vienna, Austria, in 1965. The 8th (Extraordinary) OPEC Conference approved the Host Agreement with the Austrian Government in April 1965, prior to the opening of the OPEC Secretariat in Vienna on September 1, 1965.

Why does OPEC set oil production quotas?

The OPEC Statute requires OPEC to pursue stability and harmony in the petroleum market for the benefit of both oil producers and consumers.
To this end, OPEC Member Countries respond to market fundamentals and forecast developments by co-ordinating their petroleum policies. Production limits are simply one possible response. If demand grows, or some oil producers are producing less oil, OPEC can increase its oil production in order to prevent a sudden rise in prices. OPEC might also reduce its oil production in response to market conditions in order to counter falling prices.

What is OPEC's current production ceiling?

OPEC's crude oil production ceiling and individual Member Country output limits are set out in the official Press Releases. For details of the current output ceiling, see Press Releases 4/2001.

Can an OPEC Member Country change its rate of oil production?

OPEC is an international Organization that aims to co-ordinate the production policies of its Member Countries through consensus decision-making.

Each Member Country retains absolute sovereignty over its oil production. Member Countries agree by unanimous vote on any such production ceilings and their allocation to the respective Member Countries.

Does OPEC control the oil market?

No, OPEC does not control the oil market. OPEC Member Countries produce about 41 per cent of the world's crude oil and 15 per cent of its natural gas.

However, OPEC's oil exports represent about 55 per cent of the oil traded internationally. Therefore, OPEC can have a strong influence on the oil market, especially if it decides to reduce or increase its level of production.

OPEC seeks stability in the oil market and endeavours to deliver steady supplies of oil to consumers at fair and reasonable prices. The Organization has achieved this in a number of ways: sometimes by voluntarily producing less oil, sometimes by producing more when there is a shortfall in supplies (such as during the Gulf Crisis in 1990, when several million barrels of oil per day were suddenly removed from the market).

How does OPEC oil production affect oil prices?

The Oil and Energy Ministers of the OPEC Member Countries meet at least twice every year to co-ordinate their oil production policies in light of market fundamentals, ie, the likely future balance between demand and supply. The Member Countries, represented by their respective Heads of Delegation, may or may not alter production levels during these regular Meetings and any Extraordinary Meetings of the OPEC Conference. Given that OPEC Countries produce about 41 per cent of the world's oil and 55 per cent of the oil traded internationally, any decisions to increase or reduce production may lower or raise the price of crude oil.

The impact of OPEC output decisions on crude oil prices should be considered separately from the issue of changes in the prices of oil products, such as gasoline or heating oil. There are many factors that influence the prices paid by end consumers for of oil products. In some countries taxes comprise 70 per cent of the final price paid by consumers, so even a major change in the price of crude oil might have only a minor impact on consumer prices.

How does OPEC influence world trade?

OPEC is mostly involved in the oil market, but it has long been aware of the need for improvements in world trade.

Back in 1975, OPEC was part of the calls for the creation of a new international economic order based on justice, mutual understanding and a genuine concern for the well-being of all people of the world. OPEC also called on the industrialised and developing countries to get together in order to solve the problems facing the poor countries and to look for a way to establish a better economic system by allowing more trade and more exchange of knowledge between developing and OECD countries.

The OPEC Member Countries established the OPEC Fund For International Development in 1976 in order to assist non-OPEC developing countries to improve their economies, including their trade. The OPEC Fund has so far committed itself to loans or grants totalling more than $4 billion. The OPEC Fund has been active in many regions, including Asia, Africa, Latin America, the Middle East and the Caribbean. The OPEC Fund has supported a range of different types of projects, from providing clean water and energy to remote communities, to building houses, schools, hospitals and roads and developing industry, farming and trade opportunities.

OPEC also assists in other ways: by supporting developing countries' efforts to help themselves; by helping to remove trade barriers in individual countries and on an international level, for instance through the World Trade Organization; and by helping the world to maintain a strong economic system, based on steady supplies of oil at a reasonable price.

OPEC cannot do this alone. It has been working hard to encourage other oil producers to co-operate in the oil market, and therefore to help preserve the balance of the world economy.

When these different countries finally realise that we all depend upon each other for trade, investment and a healthy life, then we shall all enjoy the full benefit of co-operation and improving economies, not only in the developing world, but in the industrialised world as well.

What are OPEC's proven crude oil reserves?

At the end of 1999, OPEC had proven reserves of 811,526 million barrels of crude oil, representing 77.8 per cent of the world total of 1,042,536 million barrels. Source: OPEC Annual Statistical Bulletin 1999.

What is OPEC's attitude towards fuel-efficient cars?

OPEC is happy to see improvements in transportation technology to make it cleaner, safer and more efficient. We would like more people to enjoy the benefits of personal mobility and to do this in an environmentally sustainable manner.

Oil is a precious, limited resource and we want people to value it accordingly.

Does OPEC support environmental policies?

OPEC supports sound environmental policies that are fair and equitable, based on proven needs and designed to address those needs.

OPEC is concerned about the environment and we want to ensure that it is clean and healthy for future generations.

OPEC also supports sustainable economic development, which requires steady supplies of energy at reasonable prices. Many countries have already introduced heavy taxes on oil products. In some countries, the price that motorists pay for gasoline is three or four times higher than the price of the original crude oil. Taxes account for 70 per cent or more of the final price of oil products in some countries.

As a result of these oil taxes, some of the oil-consuming countries (especially those in Europe where taxation levels are highest) receive much more income from oil than OPEC does.

OPEC is concerned that many of the so-called 'green' taxes that are currently levied on oil do not specifically help the environment. Instead, the simply go into government budgets to be spent on other things. Taxes might lead to instability in the oil industry, creating problems for many countries and industries.

Industrialised countries are developing policies to limit the use of fossil fuels in order to reduce their emissions of carbon dioxide. Many are already levying heavy taxes, particularly on oil products. Yet studies have shown that OECD members could cut their carbon dioxide emissions by 12 per cent by 2010 and still maintain their tax revenues, if they adopted a pro rata tax system that levies tax on all forms of energy according to their carbon content.

OPEC is concerned that some countries may impose environmental and taxation policies that are harmful to those who rely on fossil fuels for a substantial part of their income.

Some countries with high oil taxes actually subsidise domestic coal production, yet coal produces more carbon dioxide than oil. Carbon dioxide is one of the greenhouse gases which are believed to contribute to global warming.

OPEC is worried about discriminatory oil taxes because we are committed to providing a stable petroleum market.

We need to invest in oil exploration and development in order to have production capacity available as demand rises in the years ahead, but we also need to be sure that there will be enough demand for that oil and that we will get a reasonable price.

If we do not invest in expanding oil production capacity before it is needed, the world could face sudden price shocks, leading to serious global economic problems.

OPEC is also concerned that many of the environmental policies now being proposed and adopted do not have the full support of the scientific community. There is still considerable debate about the impact of global warming, and how it can best be addressed. OPEC supports further research into these important issues.

OPEC is also spending heavily to improve its environmental impact, by locating sources of higher quality oil and gas, by developing cleaner fuels for consumers, and by reducing the impact of its activities through safer, cleaner drilling, transportation and refining processes.

OPEC also participates in many international meetings in order to remind governments and others who are debating environmental policies that they must consider the needs of developing countries, especially those that rely on their income from oil.

Can OPEC guarantee the security of oil supplies?

Yes, in the right conditions, OPEC can provide an increasing amount of oil to meet the expected growth of global oil demand. OPEC currently produces about 40 per cent of the world's crude oil, but that is forecast to grow to more than 50 per cent in the next quarter of a century.

OPEC has a policy of maintaining stability in the oil market, and its Member Countries have often done this by increasing or decreasing the amount of oil they produce. Only OPEC nations have any significant spare oil production capacity, and this enables them to increase production at relatively short notice. However, because OPEC is not the only source of oil in the market, it cannot guarantee the movement of oil prices, or the availability of supplies to all consumers at all times.

OPEC has over 77 per cent of the world's oil reserves, and this will enable us to expand oil production to meet the growth in demand. But in order to expand our output, we need to be sure that the oil industry will continue to be profitable. Oil producers invest billions of dollars in exploration and infrastructure (drilling and pumping, pipelines, docks, storage, refining, staff housing, etc) and a new oil field can take 3-10 years to locate and develop.

If oil producers do not invest enough money and do it far enough in advance, then the world could face a shortage of oil supplies in future.

Therefore, OPEC is concerned about issues that undermine the prosperity of the oil industry and thus threaten the security of world oil supplies. One such issue is oil taxation in the consuming countries.

Oil taxes reduce the incomes of oil producers, and limit the funds they have available for maintenance, exploration and production activities.

Oil taxes also limit the growth in oil demand and raise costs for other industries. As a result, oil producers and other investors are unsure of the future development of oil prices and profits, and they might hesitate from making the necessary investments.

Although OPEC does try to maintain stability and to invest in a timely manner, our efforts to guarantee the security of oil supplies can be undermined - or supported - by the actions of oil consumers.

Is there any need for security of oil demand?

Yes, oil consumers need steady supplies of oil, and oil producers rely on steady demand. If demand changed suddenly it would have a major impact on the profitability of oil producers and the economies of many countries around the world.

Oil production is a long-term affair: the oil industry works 24 hours a day, 365 days a year, excluding maintenance or bad weather and other disruptions. Oil facilities require many millions of dollars of investment, and the investors try to earn a reasonable return on their capital.

A downturn in oil demand could force oil production to slow down or stop. This could physically damage the oil fields, reducing the amount of oil that can be recovered in future. The oil installations could also be damaged. Some facilities, such as those operating in the oceans, are very difficult and expensive to shut down.

When production slows down, oil producers might be forced to lay off staff. Downstream operators, such as gasoline retailers, refiners and transport companies, could also be forced to shed staff.

If oil producers receive lower incomes they must spend less money and import fewer goods from oil consumers. If investors are unsure about the risks and the likely returns from petroleum investments they may not make those investments. If we do not invest enough money, or do it far enough in advance, then the world could face a shortage of oil supplies and a downward spiral in the global economy.
However, if oil producers continue to receive reasonable prices and stable demand, they will maintain their production and invest far enough in advance to meet the growth of demand.

Thus the security of oil supplies relies upon the security of oil demand. Oil producers - and oil consumers - need to work together to ensure that the security of oil supply and demand are preserved.


SEE ALSO


 

© 2000 Organization of the Petroleum Exporting Countries
Obere Donaustrasse 93, A-1020 Vienna, Austria.
Tel: (+43 1) 21112 279 Fax: (+43 1) 214 9827