An overview of the Organisation of Petroleum Exporting Countries (OPEC) and its price regulatory policy

Authors: Amodu A. O., Anikoh G. A., Ibitomi, M. A.

The Organization of Petroleum Exporting Countries (OPEC) consists of 12 world’s largest oil producing states whose economy mostly rely on revenue from oil export, with the production capacity of slightly more than 1/3 of the global oil capacity and the proved oil reserve of over 79% of the world total. This paper seeks to examine the role of OPEC on world oil production, its price regulations and stability among the members and non-member countries and the effects on world economy. By coordinating and unifying petroleum policies among members states, OPEC sets export quotas for individual member countries and consequently exert a great deal of influence over the international oil prices. OPEC was established with the aim of protecting the interest of its member countries in terms of monetary dividend but over the years because of the dependence on oil as the main driver of the world economy, the cartel has been used more as political weapon. However, some researchers and policy makers believe that OPEC cannot and does not influence the global oil price as a cartel. OPEC will continue to have huge impact on oil production globally in the future because of the quantity of reserve and low production cost in OPEC countries. Until cars are run with hydrogen at reasonable cost, OPEC will still be the main force in global oil production. This suggests that if OPEC really wants to accomplish a stable oil market, then each member nation must accept some joint responsibility and bear some equitable production reduction based on these criteria as and when necessary. Such an agreeable mechanism governing production ceiling allocations on the basis of concrete factors/criteria can significantly reduce the apparent lack of production discipline among members that has hitherto plagued OPEC.

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