Credit: Shutterstock / Nightman1965
Whenever you hear about oil prices in the news, chances are that a certain organization called OPEC will be mentioned, too.
The name may be a mystery to some of us, while others may wonder why this organization which has a lot of say in determining oil prices is based, of all places, in Vienna.
The Organization of the Petroleum Exporting Countries (OPEC) is known for many things: it is perhaps one of the few organizations called a “cartel" that is not involved in organized crime. And it is generally liked by some nations, mainly its members, and disliked by some oil purchasers who think OPEC resorts to trickery to keep oil prices high.
Despite these misgivings, OPEC considers itself a noble and righteous entity, describing its mission as follows: “the mission of the Organization of the Petroleum Exporting Countries (OPEC) is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry."
The member states meet in Vienna, Austria, to discuss their policies about the global oil market and control the price by curbing the supply and—at times—other measures such as lobbying with non-OPEC oil producers such as Russia. OPEC members collectively control some 45% of all crude oil produced in the world.
However, what ensures the group's future sway in the oil market is that well over 80% of proven global oil reserves are located on the territories of OPEC members. Ostensibly—if oil keeps its place as a vital commodity in different industries—OPEC's importance will constantly increase rather than drop.
In all likelihood, OPEC will remain a key player in the international oil market and the global economy. Formed by five founding members with sizable oil reserves back in 1960 in Baghdad (including Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), OPEC's membership has grown to 13 nations over a period of six decades.
With just over one new admission per decade, it is not difficult to see that OPEC is a highly exclusive club.
Some of the notable additions to the cartel include the UAE (1967), Nigeria (1971), and Angola (2007). Angola's membership in OPEC was largely the result of an oil boom which happened in the country in the early 2000s.
Experts had suspected that Angola may have large oil reserves since the 1950s, but it was in 2002 that the offshore extraction of oil in Angola's territorial waters took off in a big way.
The oil boom transformed the Angolan economy, and made it such a major exporter of hydrocarbons (the second biggest oil exporter in Africa) that OPEC members welcomed Angola to their ranks in 2007.
Angola's national oil company, also known as Sociedade Nacional de Combustíveis de Angola (Sonangol) still has the right to exclusively explore and produce petroleum, but since 2007 it must also comply with the frameworks set by OPEC.
There have, however, been some frictions between OPEC and Angola over the years.
In 2020, for instance, and after the COVID-19 pandemic and the subsequent drop in demand in the global oil market, OPEC and its allies decided to curb the global crude production to save the market from a freefall.
Angola, however, initially did not find it reasonable to fully comply with a colossal cut proposed by OPEC. The country initially refused to comply with a collective 10 million barrels per day (bpd) cut between May and July, 2020.
But, Angola gradually came to the conclusion that full compliance with OPEC will be a better course of action than selling an extra 60,000-100,000 bpd in the long run.
The country improved its ties with OPEC between July and September, 2020, by agreeing to fully follow the OPEC agreement to curb the global supply. The country went even a step further to compensate for previous overproduction by cutting more from July to September, according to Reuters.
OPEC's remarkable control over the global crude oil market and Angola's significant proven offshore oil reserves will ensure that Angola will get on well with OPEC in the foreseeable future, especially as oil exports are crucial for Angola's economic development at the present juncture.