What Is OPEC+ and How Does It Affect Oil Prices?

OPEC+ (Organization of Petroleum Exporting Countries) is arguably one of the most influential organizations in the financial and energy markets. As such, familiarising oneself with OPEC+, its members, and its responsibilities is crucial to one’s overall understanding of the market and its dynamics. 

Let’s dive in:

TL;DR

• OPEC+ is a coalition of 23 countries that influences global oil production and prices, including 12 OPEC members and 10 non-member oil-producing countries.

• OPEC was formed in 1960 to stabilise oil prices, while OPEC+ was formed in 2016 with additional members like Russia and Mexico.

• OPEC+ decisions, such as production cuts or increases, significantly affect global oil prices and the international economy, especially in times of economic instability or crisis.

What Is OPEC and OPEC+?

Many traders may be confused by the various references to OPEC and OPEC+ in the media. The original Organization of Petroleum Exporting Countries, which still boasts thirteen member nations, was formed in Baghdad, Iraq, in 1960. This intergovernmental organisation was created in order to coordinate global petroleum production so as to prevent price crashes in times of low Oil demand. Although the industrialised world has reduced its dependence on OPEC+ supplies since the energy crisis of the early 1970s, the organisation’s decisions still have the ability to greatly affect the global economy, such as when members coordinated production cuts during the coronavirus epidemic.

In 2016, OPEC added ten allied countries, including Russia, which now presides over the organisation along with Saudi Arabia, and henceforth became known as OPEC+. This fateful decision came in the wake of an Oil price drop caused by slowing commerce and a jump in U.S. domestic shale Oil output. (Source: Forbes)

The twenty-three members of the supercartel now collectively produce the majority of the world’s Oil, and hold 90% of proven Oil reserves. With the majority of global petroleum production now coordinated via OPEC+, the group’s decisions have a great influence on the international economy.

OPEC Countries 

There are 12 OPEC countries, and these include:

• Algeria 

• Republic of the Congo 

• Equatorial Guinea 

• Gabon 

• Iran 

• Iraq

• Kuwait

• Libya 

• Nigeria 

• Saudi Arabia

• United Arab Emirates

• Venezuela

OPEC+ Countries

In addition to the 12 OPEC members, there are 11 more non-OPEC members that are included in the OPEC+ cartel (a total of 23 countries), and these are:

• Azerbaijan

• Bahrain

• Brunei

• Brazil

• Kazakhstan

• Mexico

• Malaysia

• Oman

• Russia

• South Sudan

• Sudan

Why Is OPEC+ Important?

OPEC+'s interests are to prevent oil’s price per barrel from falling below a certain threshold. This is important to member countries since the economies of some, such as Russia and Saudi Arabia, are heavily dependent on Oil revenues to function. At its summits, held biannually or more often, member states must balance geopolitical and economic concerns in their predictions for how oil demand will move in the near future and coordinate production accordingly. 

At times, OPEC+, having assessed the state of the global economy, foresees decreased growth or a recession and, therefore, a drop in oil demand as the need for energy falls. In cases like these, the members agree to cut production to keep supplies tight and prop up the price per barrel, such as when an output drop of 3 million barrels per day was coordinated at the height of the Great Recession in 2009.

Conversely, when economic growth or recovery seems likely, OPEC+ countries can increase their petrol output to satisfy demand without endangering ever-important prices. 

How Does OPEC+ Affect Oil Prices & Energy CFDs?

OPEC+ can directly influence oil prices because it regulates the oil supply. For example, if OPEC+ cuts supply while demand is still high, it can cause oil prices to skyrocket, and vice-versa. 

This, in turn, can be important to CFD traders, in general, and energy market traders, in particular, those who engage in the trading of Oil CFDs or Natural Gas CFDs traders.

Conclusion 

OPEC+ (which is composed of OPEC members and its allies) is one of the world’s most powerful institutions. It has a direct impact on oil prices, thereby affecting energy trading and potentially causing volatility.

Knowing what OPEC+ is and why it is important is crucial for one’s overall understanding of the markets and their influences. 

Ready to leverage OPEC+ decisions and trade Oil CFDs? Start now. 

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