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Business & Economy

OPEC: Balancing the oil market since 1960

The Organization of Petroleum Exporting Countries (OPEC) celebrated on September 14 its 57th anniversary. Since 1960 to date, the group held 172 meetings (including both regular and extraordinary).
The first meeting was in Baghdad in 1960 and the last significant meeting the group held was in Algeria in September 2016, when ministers decided finally to take a collective action to stop crude prices from sliding after Brent reached $28 at the beginning of the year.
Below are some highlights of some of the major features of each decade since the creation of the group until the Algeria meeting.

The 1960s
The international oil market was dominated by the “Seven Sisters” multinational companies who used to price oil during that period. On the back of the sisters’ decision to lower posted oil prices, ministers from five producers—Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela, gathered in Baghdad on Sept. 10,1960 and after four days of discussion, they finally agreed to form an organization to defend their interests against the sisters. OPEC established its Secretariat, first in Geneva and then, in 1965, in Vienna. Membership grew to ten by 1969 and the sisters started to recognize the group more by the end of the decade.

The 1970s
OPEC gained international prominence during this decade and membership grew to 13 by 1975. Member countries took control of pricing their crude and some nationalized their domestic petroleum industries. Two major events shaped oil prices during the decade. First the Arab oil embargo in 1973, and, second, the outbreak of the Iranian Revolution in 1979. Oil prices skyrocketed and this initiated the industrial world search for alternative energy.

The 1980s
This is a period of turmoil in oil markets. After reaching record levels of $30s early in the decade, prices began to weaken, before crashing in 1986 to around $6-$7, responding to a big oil glut. In response to falling prices and ample supply from outside the group, in 1983 OPEC adapted for the first time a quota-based production system. The quotas were violated many times and the result was the abolishment of quotas by Saudi Arabia in late 1985 that led to the price war that ended in 1986. Towards the end of the decade market stabilized, with oil prices at around $15-$16.

The 1990s
Prices moved less dramatically than in the 1970s and 1980s, and they increased briefly during the Gulf War in 1990–91. Prices remained stable throughout most of the decade, but in 1998 prices collapsed due to the Asian financial crisis. OPEC made a famous mistake at the Jakarta meeting in 1997, increasing production amid a weak market. This was also a decade of breakthroughs in producer-consumer dialogue, matched with continued advances in OPEC/non-OPEC relations as producers tried to stop the fall in oil prices in 1998.

The 2000s
Early in the decade OPEC and non-OPEC producers managed to agree to cut production to shore up prices. Towards the middle of the decade oil prices jumped as China emerged as a big oil consumer. But speculation rose during the decade and prices soared to record levels of $147 in mid-2008, before collapsing during the emerging global financial turmoil. This led to the Oran meeting in which OPEC decided to cut output by 4.2 million barrels a day to lift prices from their lows of $30s.

2010 until now
Early in the decade, oil markets were recovering from the 2008/2009 recession. In 2011, the “Arab Spring” and escalating social unrest in many parts of the world affected both supply and demand, leading to another jump in oil prices. Prices were stable between 2011 and mid-2014, before oil oversupply from North America caused them to fall in 2014. OPEC took a decision in Algeria in September 2016 to cut output to stop the slide in prices. The agreement included Russia and other non-OPEC producers in December and it will extend until March 2018. Second half of the decade is being shaped by historic cooperation between OPEC and 12 non-OPEC states and their struggle to stabilize the market in face of shale oil production from the US.

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