Introduction

Producers, not members of OPEC, are free to make their own decisions on oil production, in contrast to OPEC members, whose oil output is subject to centralised coordination. Also, compared to the nations that make up OPEC, where the majority of oil production is carried out by national oil firms known as NOCs, the majority of oil production in non-OPEC countries is carried out by international or investor-owned oil corporations known as IOCs.

Explanation

IOCs base their investment decisions on economic considerations, and their primary objective is to raise the company's value to its shareholders. Although some NOCs function in a manner that is analogous to that of IOCs, the vast majority of NOCs have additional goals, such as creating jobs, improving infrastructure, or generating revenue that has repercussions for their nation in a more general sense.

As a direct consequence of this, non-OPEC investment, and consequently future supply capability, tends to react more quickly to shifts in market conditions that are purely quantitative. Producers in nations that are not members of OPEC are typically considered to be price takers. This means that they react to changes in market pricing rather than making an effort to influence prices through production management. Consequently, non-OPEC producers produce at or very close to their maximum capacity; therefore, they have minimal spare capacity. Prices tend to go up when there is less supply available from countries outside of OPEC since this reduces the amount of oil available on the market, which increases the "call on OPEC." The greater the demand placed on OPEC, the greater the organisation's potential to affect market prices.

According to Hamilton, the years 1973 to 1996 constitute "the age of OPEC," whereas the years 1997 and beyond form "a new industrial age." Granger's model predicts that growth in non-OPEC oil output between 1974 and 1996 will cause an expansion in OPEC oil production. During the earlier period, OPEC oil production dropped dramatically when positive shocks were experienced by non-OPEC oil production. However, this trend did not continue during the "new industrial age." In contrast to the "age of OPEC" period, the "new industrial age" sees significant growth in OPEC oil output in conjunction with an increase in the price of oil. The oil production by OPEC countries reacts considerably to favourable shifts in the GDP over the entire passage.

The Impact Of Opec And Opec+ On Oil Prices

The states that contribute to the production of oil on a worldwide scale are either members of OPEC, OPEC+, or non-OPEC nations. Late in 2016, ten countries outside of OPEC decided to join the organisation and form OPEC+ to have more control over the global crude oil market. It should come as no surprise that the level of control OPEC+ possesses over the world's economy is even greater than that of OPEC.

Opec's Control Of The Market

Approximately sixty percent of the petroleum that is traded around the world is OPEC's exports. According to another assessment by the Energy Information Agency, more than 80 percent of the world's proven crude oil reserves are located within the borders of nations that are members of OPEC. In 2018, almost two-thirds of that total was situated within the Middle Eastern region. In addition, every nation that is a part of OPEC is continually working to advance its technological capabilities and expand its exploration efforts, which has led to further increases in its oil production capacities while simultaneously lowering its operational expenses.

Pros And Cons

The current atmosphere for cooperation still has several issues that need to be addressed. For instance, there is a component of crisis management regarding the willingness of some parties to cooperate with OPEC over its market-stabilisation measures. However, in reality, there should also be a "sunny day" component, which ensures that this very welcome and necessary support continues even when the market is stable. This is because, as we are all aware, the market can rapidly shift from a steady state to an unstable state. The more robust and sustained the defence mechanisms are, the more effectively we can deal with such situations.

Since the early 1990s, significant progress has been made in the dialogue between producers and consumers, accompanied by increased cooperation between OPEC and non-OPEC producers. This has been given particular expression in the gatherings of the International Energy Forum, which has developed into a well-established institution throughout this period and has its secretariat located in a nation that is a member of OPEC, namely Saudi Arabia.

Conclusion

Oil price is determined by several factors, one of which is supply and demand. About forty percent of the world's crude oil comes from countries that are members of OPEC. Approximately sixty percent of all petroleum that is traded internationally is OPEC's exports. Russia has emerged as a significant player in the global oil market. Still, the Organization of the Petroleum Exporting Countries (OPEC) and Saudi Arabia hold the upper hand in defining the path that oil prices will take. There is little evidence to conclude whether or not countries outside of OPEC have an impact on the price of crude oil.