OPECOPEC
OPEC, the Organization of the Petroleum Exporting Countries, is a group of oil producers that coordinates output policy. Since 2016 it has also worked with other producers, including Russia, as OPEC+. Its production decisions can move oil prices sharply.
When OPEC ministers meet, oil traders watch every headline. A single decision on output can move crude prices sharply, so knowing how the group works is essential for anyone trading energy.
- Category
- Commodities, Energy and Carbon
- Reading time
- 3 min
- Also called
- Organization of the Petroleum Exporting Countries, OPEC+, Oil cartel
- Updated
OPEC in plain words
OPEC manages oil production among members by setting production targets.1
OPEC+ adds a group of major non-OPEC exporters, the largest being Russia.1
Members produce about 35% of world crude, and their exports are about 50% of oil traded internationally.1
How an OPEC decision reaches prices
Assess the market
Ministers review conditions and prospects.
Set targets
Members agree production limits.1
Coordinate with partners
In 2016 non-OPEC producers agreed to adjust output for six months, extendable.2
Announce
Decisions, such as a 1.2 mb/d adjustment in 2016, are published.2
Market reacts
Prices historically tend to rise when targets are cut.1
Watch spare capacity
Members hold almost all of the world's spare capacity.1
Worked examples
Example 1 — A cut
Bullish for oilHypothetical group output 30 mb/d, cut 1.2 mb/d.
| New output | 30 − 1.2 = 28.8 mb/d |
| Cut share | 1.2 ÷ 30 = 4% |
Cuts to targets historically tend to lift prices.1
Example 2 — Trader's position
+$4,000A hypothetical trader is long 1,000 barrels at $75; price rises to $79 after a cut.
| Gain per barrel | $79 − $75 = $4 |
| Total | 1,000 × $4 = $4,000 |
That reaction fits EIA's observation on target cuts.1
Example 3 — Short caught
−$2,000A trader short 500 barrels at $80 sees $84.
| Loss per barrel | $84 − $80 = $4 |
| Total | 500 × $4 = $2,000 |
Because OPEC holds almost all spare capacity, its decisions can move prices against positions fast.1
OPEC vs OPEC+
| Aspect | OPEC | OPEC+ |
|---|---|---|
| Members | OPEC member countries | OPEC plus non-OPEC partners |
| Largest non-OPEC member | — | Russia |
| Since | 1960 | 2016 cooperation |
| Market share | About 35% of crude output | Larger |
Why traders follow OPEC
Event risk
Positioning around meetings.
Supply outlook
Modelling future output.
Spare capacity
Gauging how much a disruption matters.
Macro
Oil feeds into Inflation.
Advantages and disadvantages
Advantages
- Decisions are public and scheduled.
- Spare capacity can calm disruptions.
- Clear signal for supply outlook.
Disadvantages
- Compliance with targets varies.
- Surprise decisions cause gaps.
- Politics can override economics.
- Non-members can offset cuts.
Going deeper
Read as far as you need. Each level builds on the one before it.
Common mistakes
Trading headlines
Reacting before details are confirmed.
Ignoring compliance
Assuming targets equal actual output.
Forgetting OPEC+
Watching only OPEC members.
Over-leverage
Holding big positions through meetings.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- OPEC coordinates member output.
- OPEC+ adds partners like Russia since 2016.
- Cuts tend to lift prices.
- Members hold most spare capacity.
- Meetings are major event risk.
Frequently asked questions
How often does OPEC meet?
Does OPEC set the oil price?
Is the US in OPEC?
Further learning
- Futures Contract
Where oil is traded.
- Volatility
Meeting-day swings.
- Price Gap
Price jumps on news.
- Inflation
Oil's macro impact.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- U.S. Energy Information Administration. What drives crude oil prices: Supply OPEC (opens in a new tab) Checked .
- OPEC. OPEC and non-OPEC Ministerial Meeting – Press release, 10 December 2016 (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.