Increasing co-operation between states over the last century, including the establishment of the European Union and United Nations, has largely been heralded for the impact it has had on fostering peace and unity in many parts of the world. International co-operation has also been used to drive financial gain and economic efficiency, and one of the leading examples of this is OPEC – the Organization of Petroleum Exporting Countries.
OPEC is a cartel which includes 14 active member states, and their primary aim is to keep the price of oil stable, thus protecting its own interests and staving off competition. Its power is significant, given that its members hold around 80 percent of the world’s crude oil reserves. Therefore, it’s important to note their influence on the industry, and whether their level of power is likely to diminish or grow into the future. Read on to find out more about the background of the organization, and how it looks after the needs of its members.
When And Why Was OPEC Established?
Students in oil and gas management courses should note that membership of OPEC has grown since its foundation. Originally established at the Baghdad Conference in 1960 by five founding members – Iran, Iraq, Kuwait, Saudi Arabia and Venezuela – they have since been joined by Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador, Angola, Gabon, and most recently Equatorial Guinea in 2017. Indonesia suspended its membership for a second time in 2016.
The organization’s headquarters is now located in Vienna, having originally been situated in Geneva. The role of Secretary General of OPEC is offered on a three-year term, and has been held by Nigeria’s Mohammed Barkindo since 2016.
In understanding OPEC’s objectives, it’s important to note non-member states, such as the United States and Canada, who also have large reserves and influence in the oil sector. OPEC’s attempts to avoid price volatility can sometimes face opposition from these countries.
MBA students learn to understand OPEC’s influence in the oil industry
How Does OPEC Achieve Its Aims?
OPEC has traditionally stated its objective of maintaining oil prices at $70-80 per barrel, but some members have slightly lower or higher break-even prices. By amalgamating, they’ve agreed to limits on production in order to reduce price volatility and keep prices relatively high. However, prohibitively high prices can increase competition from non-member states, who then have incentive to explore different and more expensive methods of oil production, such as shale oil extraction in the US and Canada.
In order to prevent regular peaks and troughs in oil prices, OPEC states also keep to mutually agreed production quotas and schedules. This can sometimes result in over-production, which led to prices dipping from a record high of $143 per barrel to just under $34 in the space of six months in 2008. An agreement by OPEC members to reduce supply eventually brought the price back up to a more profitable level.
International co-operation has led to co-existence between OPEC and its non-members
How OPEC Could Impact Your Career After Your MBA in Oil and Gas Management
Under increasing pressure from within the shale oil industry, OPEC announced a production cut in September 2016, their first in eight years. The competition between both sides has since been described as one of ‘mutual co-existence’, but there’s no doubt that OPEC’s voice will remain one of the strongest in the sector for many more years to come.
Consequently, young professionals looking to enter the oil and gas industry can expect OPEC’s influence to play a crucial role in their careers, affecting dealings with companies in its member states, its competitor’s strategies, and overall oil pricing and policies. Pursuing an education at an institution like Geneva Business School, which allows you learn from international professionals with years of industry experience, will give you the strong foundation of knowledge you need to navigate this evolving sector with confidence.
Are you excited to learn more about this industry?Find out how an MBA in Oil and Gas Management at Geneva Business School can prepare you for a great career.