When it comes to crude oil prices, politics dwarfs everything else. The Organization of the Petroleum Exporting Countries (OPEC) on Friday agreed to increase its daily output to address the problem of rising crude oil prices.
Countries across the world have been vocal in recent months about the need to bring down rising oil prices that threaten to put the global economy under stress. Emerging markets such as India that has been affected by the rising cost of oil imports have also been exerting pressure.
The present deal could help the Saudis appease major oil consumers to some extent. Meanwhile, Iran, which has been opposed to raising OPEC output as it would lower prices, is set to suffer a marginal loss as it lacks spare capacity to ramp up production. This works in favor of its rival, Saudi Arabia, which can recover from the impact of lower prices by capturing market share.
OPEC has failed to address two uncertainties that will shape the oil market over the coming months and years.
The first is the situation in Venezuela, which has gone from bad to worse over the past two months. In the short term, the situation remains the greatest uncertainty hanging over the oil market.
The second, and potentially more destabilizing, issue in the longer term is the prospect of a sharp increase in the production of so-called “tight oil” from shale rocks in the US.
The Organization of the Petroleum Exporting Countries (OPEC) is a group of oil-producing nations that was first established in Baghdad, Iraq, in 1961. OPEC is one of the most powerful international organizations in the world and was a major player in the shift towards state control over natural resources.
The OPEC Statute distinguishes between the Founder Members and Full Members – those countries whose applications for membership have been accepted by the Conference.
The Statute stipulates that “any country with a substantial net export of crude petroleum, which has fundamentally similar interests to those of Member Countries, may become a Full Member of the Organization, if accepted by a majority of three-fourths of Full Members, including the concurring votes of all Founder Members.”
The Statute further provides for Associate Members which are those countries that do not qualify for full membership but are nevertheless admitted under such special conditions as may be prescribed by the Conference.