The following is a guide to the terminology and
the key concepts and workings of OPEC. The glossary covers areas
such as the mechanics of OPEC meetings and how news from OPEC is
generated.
Basket
Ceiling/output target
Conference
Delegation
Extraordinary conference
Emergency meeting
Meetings
Members
News from OPEC
Objectives
OPEC member countries
President
Production
Quota
Secretariat
Secretary-general
Spare Capacity
Summit
Supply
Basket
The OPEC basket is a number generated daily, weekly, monthly and annually by the OPEC secretariat to indicate an average oil price which might typify different OPEC crude oils.
The basket was devised in the late 1980s and was initially supposed to serve as a price target. In March 2000, OPEC decided to use the basket price as a trigger for increasing or cutting production if it moved outside a $22-28/barrel range. At that time, there were seven crudes in the basket: Algeria's Saharan Blend, Indonesia's Minas, Nigeria's Bonny Light, Saudi Arabia's Arab Light, Dubai crude, Venezuela's Tijuana and non-OPEC Mexico's Isthmus.
The seven-crude basket was frequently criticized as being too light and sweet and therefore unrepresentative of OPEC crude, the bulk of which is heavy and sour. In March 2005, at a meeting in Isfahan, Iran, ministers accepted a recommendation from the board of governors to change the composition of the basket and a new, 11-crude basket, representing the major streams of each member country, was introduced in June 2005.
The current version of the basket contains 13 crudes, representing all 13 member countries, including Angola, which joined in January 2007, and Ecuador, which left the group in the early 1990s but rejoined in November 2007.
The new basket comprises: Algeria's Saharan Blend, Angola's Girassol, Ecuador's Oriente, Indonesia's Minas, Iranian Heavy, Iraq's Basrah Light, Kuwait crude, Libya's Es Sider, Nigeria's Bonny Light, Qatar's Dukhan, Saudi Arabia's Arab Light, the UAE's Murban and Venezuela's BCF-17.
OPEC currently has neither a price target nor a price floor and says that because oil prices have been driven higher by factors beyond supply and demand it is powerless to influence prices. The OPEC basket climbed above $100/barrel for the first time in March 2008 and stood at its highest level ever--$$111.66/barrel--on April 28.
Ceiling/output target
OPEC does not currently talk of crude output ceilings or quotas, preferring to talk of output targets.
The ceiling used to be the sum of individual country quotas, supposedly the level above which OPEC members collectively agreed they would not produce crude oil. In practice, OPEC has produced above its ceilings for much of its history.
Now, however, with most OPEC members pushing against their production capacity limits, the group sets an overall output target and individual country targets.
Iraq, struggling to rebuild its oil industry after years of UN sanctions and a US-led war that removed former president Saddam Hussein, does not have a production target.
Official quotas were sidelined in October 2006, when OPEC agreed at an emergency meeting in Doha, Qatar, to remove 1.2 million b/d of actual crude production from world markets, which it said were oversupplied. OPEC based the cut on estimated September production of 27.5 million b/d, setting a target output level of 26.3 million b/d to take effect at the beginning of November 2006. Individual baselines and targets were not given.
Subsequent adjustments--including output allocations for Angola and Ecuador--have taken the overall output target to 29.673 million b/d. ( See production estimate table: output target).
Conference
An OPEC conference is a formal meeting of the group's 11 members. By statute OPEC is obliged to hold two ordinary conferences a year, but also frequently holds scheduled "extraordinary conferences" in between. Most conferences take place in Vienna, where OPEC has its headquarters, but recent years have seen meetings in Algeria, Iran, Kuwait, Nigeria, Qatar, the UAE and Venezuela and also in Egypt and Lebanon.
Delegation
Each member of OPEC is represented at OPEC conferences by a head of delegation, usually the country's oil minister, and by a group of delegates ranging in number from one or two to as many as 20. Delegates are usually analysts and economists from the country's oil ministry and/or national oil company.
Extraordinary Conference
A meeting of OPEC outside the two regular conferences required by statute.
Emergency Meeting
An unscheduled OPEC conference. OPEC dislikes this term, as it smacks of panic.
Meetings (See conference)
OPEC usually meets in Vienna where it has a secretariat on the east bank of the Danube canal, though the past few years have seen meetings held in several member countries and also in Lebanon and Egypt.
OPEC rules dictate that a full meeting must convene to kick off each conference. Ministers tend to try to reach consensus during informal bilateral and multilateral meetings ahead of the formal opening session which can also be the only formal session. Informal meetings typically take place in the three or four Vienna hotels where ministers and their delegations stay.
Members
At its peak, OPEC had 13 members, but small producers Ecuador and Gabon dropped out in the early 1990s, leaving the total membership at 11 for many years. Angola joined in January 2007 and Ecuador resumed its membership in November 2007.
Current members are: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Libya, Kuwait, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
Indonesia has regularly reconsidered its OPEC membership because of its diminishing status as a net exporter. In 2004, Indonesia was a net importer of oil.
Iraq is effectively not a functioning member of OPEC. It exported no oil legally between August 1990, when it invaded Kuwait and incurred UN sanctions, and late 1996. In December 1996 it resumed exports under the UN's oil-for-food program, but these exports were regulated by the UN. Iraq is struggling to rebuild its oil industry after the removal of the government of President Saddam Hussein by US and British forces in a war launched in March 2003. Iraqi crude exports are channeled mainly through the Persian Gulf, frequent acts of sabotage having kept the crude pipeline linking the northern oil fields with Turkish Mediterranean port Ceyhan out of action for long periods.
News from OPEC
OPEC meetings are typically the subject of intense media attention, and can draw up to a couple of hundred reporters in times of exceptionally high or low oil prices. Real-time specialist screen news services such as Platts, Reuters, Dow Jones and Bloomberg typically send teams of reporters to cover the conferences. Competition between the services to be first with breaking news is measured in seconds because of the massive influence OPEC decisions can have on oil prices. It is not unknown for real-time news headlines from OPEC meetings to change world oil price benchmarks by $1-2/bbl in a matter of minutes.
Because OPEC meetings occur behind closed doors, however, most valuable news gathered from the conferences comes from off-the-record briefings by delegates or ministers, and from snatched interchanges with ministers as they enter or leave their hotels.
OPEC typically holds a stone-walling press conference at the end of its conferences. Other press conferences are rare, though individual countries will occasionally hold a formal press conference.
Ministers often give lengthy on-the-record briefings or interviews to journalists once formal conferences are over.
Objectives
OPEC's general objective over the past 40 years has been to maximize the revenues to its members from oil exports. Typically the pursuit of this objective has presented itself as a choice between increasing production in the hope of selling more barrels of oil, and reducing production in the hope of profiting from higher oil prices.
As global demand for oil rises, much attention is focused on surplus crude production capacity. The general view is that only Saudi Arabia has any significant volume of spare capacity. Saudi Arabia, now pumping above 9 million b/d, says it is currently capable of producing 11.3 million b/d and will be capable of producing 12.5 million by the end of 2009. Official Saudi policy is to maintain spare capacity of between 1.5 million and 2 million b/d.
President
The OPEC president is elected by heads of delegation from among their number. The current president is Algerian oil minister Chakib Khelil.
Production
OPEC relies on "secondary sources" to assess the adherence of its members to production quotas and ceilings, OPEC's secretariat experts track what is termed "supply to markets." This is counted as wellhead oil production plus/minus movements out of/into storage. Another way to define it is as exports of crude oil plus domestic consumption.
Quota
OPEC has functioned for nearly half of its 40-year history by setting individual production quotas for each country under an overall ceiling. Here is OPEC's own reason for setting quotas:
"The OPEC Statute requires OPEC to pursue stability and harmony in the petroleum market for the benefit of both oil producers and consumers. To this end, OPEC Member Countries respond to market fundamentals and forecast developments by co-ordinating their petroleum policies. Production limits are simply one possible response. If demand grows, or some oil producers are producing less oil, OPEC can increase its oil production in order to prevent a sudden rise in prices. OPEC might also reduce its oil production in response to market conditions in order to counter falling prices."
Quotas are, however, highly political, and the group has tended to shy away from any attempt to rework the quota system despite demands from some countries for quotas appropriate to their expanding production capacity. OPEC's solution has generally been to pro rate any output adjustments, but this has meant some countries such as Venezuela and Indonesia being given quotas they are incapable of producing.
Current output allocations are described as targets rather than quotas, being based not on official ceilings and quotas but on estimated actual output (see ceiling/output target.
Secretariat
OPEC is headquartered in Vienna where it maintains a permanent secretariat tasked with studying oil markets, organizing OPEC conferences and tracking member countries' production. The secretariat is under the control of the OPEC secretary general.
Secretary-general
OPEC's secretary general is charged with managing the organization's permanent secretariat in Vienna, and with organizing and orchestrating OPEC conferences. In January 2007, Abdalla el-Badri, a former Libyan oil minister, took up the post after the organization had been without a secretary general since January 2004 because ministers had been unable to agree unanimously on a replacement for Venezuela's Alvaro Silva who left the job at the end of December 2003.
Although the job is primarily an administrative one, the secretary general is often a key figure in negotiating and resolving conflicting points of view within OPEC, and choosing a secretary general tends to be a highly political matter. Members rotated the post in the distant past, but when that method became overshadowed by politics, it was decided to make the appointment on the basis of merit. When the merit principle is used, ministers must agree unanimously on the candidate. A candidate chosen on merit may be appointed to a second three-year term.
Spare capacity
Surplus crude production capacity within OPEC has shrunk dramatically as the cartel has boosted output alongside rising oil prices. Only one member country, Saudi Arabia, is seen as having any significant volume of unused capacity. Riyadh, now pumping above 9 million b/d, says it is currently capable of producing 11.3 million b/d and will be capable of producing 12.5 million by the end of 2009. Official Saudi policy is to maintain spare capacity of between 1.5 million and 2 million b/d.
Summit
A meeting of OPEC heads of state. Algeria hosted the first OPEC summit in 1975 and Venezuela, in 2000, the second. A third summit was held in Riyadh, Saudi Arabia, in November 2007.
The Riyadh summit took place less than two weeks after oil prices hit record highs of close to $100/barrel and in an environment of growing concern about future supply security. The summit ended with a pledge from the 13 heads of state to ensure adequate and stable supply of oil to world markets and to invest sufficient money to help meet future demand. They said the new investment would go not only on upstream production capacity increases but also further downstream, where shortages of refining capacity have been cited as one factor behind current high oil prices.
The OPEC leaders, whose countries account for around 40% of the world's current oil supply, vowed to "undertake the necessary investments to increase upstream and downstream capacities in our member countries, and, at the same time, urge consuming nations to provide the environment conducive to petroleum investments in their countries," according to a formal declaration issued after the meeting ended.
The summit declaration reaffirmed the group's commitment to "continue providing adequate, timely, efficient, economic and reliable petroleum
supplies to world markets."
Supply
See production.
Source: Oilgram News
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