Organization of the Petroleum Exporting Countries (OPEC) controls crude oil supplies. To what extent does OPEC set or influence prices that consumers see at the pump?
OPEC is made up of 11 nations whose economies depend on oil export revenues. Member countries strive to achieve stable oil prices for both consumers and producers.
OPEC directly influences the price of crude oil by setting production quotas. Currently OPEC has imposed a production quota of 28 million barrels daily. Although Iraq is excluded from the quota, the 10 other OPEC countries have toed the line to produce 27.72 million barrels per day. A drop of almost US$20 in oil prices since mid-July and robust fuel supplies have prodded 6 OPEC member countries including top exporter Saudi Arabia to voluntarily reduce production.
Crude oil represents only a quarter of the price of oil products in many countries including the U.K. Taxes often have more influence over the price of oil products than what OPEC charges for crude. When oil taxes are raised, end consumers often mistakenly blame the oil producers, but it is really their own governments that are primarily responsible for oil's high price.
Saudia Arabia is discussing a million barrel-per-day production cut that should add $4 to $6 to oil's current price of some $59. OPEC uses production cuts to stabilize prices which could free-fall to $40 or $50 per barrel should an oil glut materialize.
In 2005, OPEC's 11 member countries produced some 31 million barrels of crude oil daily. This represents 42.7% of total world daily output of some 72 million barrels. The list below shows the 5 member countries that produce some 70% of OPEC’s daily crude output.
Top OPEC Crude Oil Producers (in million barrels per day)
- Saudi Arabia … 9.35
- Iran … 4.09
- Venezuela … 3.13
- Kuwait … 2.57
- United Arab Emirates … 2.38
Nigeria, Iraq, Libya, Algeria, Indonesia and Qatar produce the remaining 30% of OPEC’s crude oil (in order from greatest to least).
Proven crude oil reserves around the globe are estimated at more than one trillion barrels. OPEC member countries hold more than 78% of these reserves. The following list reveals the 5 member countries that hold 79% of OPEC’s proven crude oil reserves.
OPEC Proven Crude Oil Reserves (in billions of barrels)
- Saudi Arabia … 264.2
- Iran … 136.3
- Iraq … 115
- Kuwait … 101.5
- United Arab Emirates … 97.8
The remaining 21% of crude oil reserves come from Venezuela, Libya, Nigeria, Qatar, Algeria and Indonesia (in order from greatest to least).
And The Winners Are...
Member countries export almost 23 million barrels of crude oil daily, or just over 74% of what OPEC produces each day.
OPEC’s leading exporters have the greatest impact on influencing the price of crude oil worldwide. The following 5 top-producing member countries generate some 72% of OPEC’s daily crude oil exports.
OPEC Crude Oil Exports (in millions of barrels per day)
- Saudi Arabia … 7.21
- Iran … 2.40
- Nigeria … 2.33
- Venezuela … 2.20
- United Arab Emirates … 2.19
Venezuela, Libya, Nigeria, Qatar, Algeria and Indonesia are responsible for the remaining 28% of OPEC oil exports (in order from greatest to least).
The final prices that consumers pay for oil products are determined by 3 components. Crude oil prices represents what is paid to oil producers like OPEC countries. In addition, the price of oil includes refinery costs and finally taxes. Taxes on oil vary widely by country.
In 2005 the price of oil for Americans was about US$0.48 per litre. Of that, 60% was for crude oil while 19% was for refinery costs with 21% in federal taxes. Canadians were paying US$054 per litre 58% for crude oil, 16% for refinery costs and 26% in government taxes. Contrast those statistics with the U.K. where oil cost US$1.25. Crude oil comprised only 28% of the final price, while refinery costs and taxes added 16% and 56% respectively.
Sources: www.opec.org
