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FUCNTION
The OPEC MCs coordinate their oil production policies in order to help stabilise the oil market and to help oil producers achieve a reasonable rate of return on their investments. This policy is also designed to ensure that oil consumers continue to receive stable supplies of oil.
The Ministers of the OPEC MCs responsible for energy and hydrocarbon affairs meet twice a year to review the status of the international oil market and the forecasts for the future in order to agree upon appropriate actions which will promote stability in the oil market.
The MCs also hold other meetings at various levels of interest, including meetings of petroleum and economic experts, country representatives and special purpose bodies such as committees to address environmental affairs.
Decisions about matching oil production to expected demand are taken at the Meeting of the OPEC Conference. Details of such decisions are communicated in the form of OPEC Press Releases.
The OPEC Secretariat is a permanent inter-governmental body. The Secretariat which has been based in Vienna since 1965, provides research and administrative support to the MCs. The Secretariat also disseminates news and information to the World at large.
The official language of the Secretariat is English.
Pricing Strategies
OPEC's success in taking over oil pricing created new problems for the group. Oil-importing countries, led by the United States, demonized OPEC as the primary cause of worldwide economic decline. Inside OPEC, structural differences among member industries led to disagreements over pricing strategies. Low-price-preference members such as Saudi Arabia, with small populations and huge oil reserves, favored moderate oil prices to discourage consumers from seeking alternative fuels. High-price-preference members like Algeria, with large populations, wanted high prices so they could pay for ambitious development programs, while their small reserves offered no incentive to support pricing policies that would sustain the long-term attractiveness of oil as a fuel. Some members with large reserves, like Iran and Libya, also favored high prices. Iran had a large population and an ambitious development program, but Libya's preference was politically motivated by Libya's desire to assert its autonomy among its OPEC peers as well as its independence from western domination.
Price positions could be flexible, however. In 1978, the threat of revolution pushed Mohammad Reza Shah Pahlavi of Iran to seek allies among his neighbors. Iran joined most of the Arab gulf countries in pushing for the adoption of a long-range moderate pricing strategy to replace what had, until then, been an ad hoc method of setting oil prices. The new system became obsolete almost before it was agreed upon, however; it was superseded by pressures that doubled oil prices in one year thanks to panic buying during the Iranian Revolution. Predictably, oil demand fell, but the availability of new, non-OPEC supplies from the North Sea and elsewhere allowed major importers to shift their purchases, making OPEC the marginal supplier of crude oil to the world market.
Market weakness in the early 1980s caused OPEC to focus on oil production sharing as a strategy for controlling oil prices by regulating crude supply. A voluntary production-sharing plan was launched in 1982 but, as had happened to the voluntary oil import quota in the United States during the 1950s, producers ignored it. A mandatory quota system was introduced in March 1983, and crude prices were reduced for the first time since OPEC had assumed its price-setting role in the hope of stimulating consumer demand. An Austrian accounting firm was hired to monitor member production in order to discourage cheating on the quotas.
The quota system had many flaws. Even small producers were required to accept a quota, prompting Ecuador to leave OPEC in 1993 to escape its quota obligations. Saudi Arabia, OPEC's largest producer, refused to accept a formal quota that it said was an unacceptable infringement on its sovereignty. This marginalized Saudi production within OPEC as crude from many sources flooded the market and total demand for OPEC oil declined. Without a quota and its implied entitlement to produce a defined share of OPEC crude, the Saudis had to accept the informal role of swing producer, one which would vary its production to satisfy market demand remaining after other producers had supplied their quota amounts. As OPEC's swing producer, however, Saudi Arabia would have to absorb more than a proportional share of demand reduction. This already unpleasant situation would be complicated in the Saudi case by its heavy dependence on associated natural gas, which led to shortages of fuel for power generation when oil production there fell to below 3 million barrels per day in mid-1985. Shortly afterward, Saudi Arabia decided to produce oil with only its own needs in mind. Global supplies burgeoned and oil prices plummeted, dipping below $10 U.S. per barrel in June 1986. Although oil prices recovered, they have yet to return to pre-1985 highs.