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Lesson 8: OPEC Meeting

Lesson 8: OPEC Meeting

OPEC members hold meetings twice a year. Traders should look out for when these meetings take place, as they may alter the price of Oil and oil-linked assets.

The OPEC meeting affects traders and investors because oil production quotas for OPEC member states and certain non-voting observers are set during the session. These quotas can have a strong impact on the global supply of oil and influence its price. This is because OPEC members control 79.4% of proven crude oil reserves, and the organization supplied approximately 44% of the world’s oil.

The quotas set at OPEC meetings can also affect demand in other energy markets, including natural gas and heating oil. This makes OPEC meetings important dates in some traders’ calendars.

There is quite a bit you should know before you start trading. If you want to trade the next OPEC Meeting, here is a quick guide that can help:

  • Research your Oil marketYou can get direct exposure to oil prices through oil futures and funds or indirect exposure through oil stocks and energy ETFs
  • Define your strategy Trading lets you speculate on the price movement; dealing lets you take direct ownership of the oil assets.
  • Take your position create an account with CAPEX.com to start trading the next OPEC Meeting.

Understanding OPEC and Oil Prices

The Organization of the Petroleum Exporting Countries, also known as OPEC, is an intergovernmental organization of 13 countries headquartered in Vienna, Austria. OPEC was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Current OPEC members are Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates, and Venezuela.

A larger group called OPEC+ includes Azerbaijan, Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Oman, Philippines, Russia, Sudan, and South Sudan.

The organization of the Petroleum Exporting Countries (OPEC) controls oil output by establishing production targets among its members. About 44% of the world's crude oil is produced by OPEC members. Additionally, the United States Energy Information Administration estimates that OPEC exports account for nearly 60% of all petroleum sold abroad.

This market share means that OPEC's actions have a significant impact on global oil prices. Saudi Arabia, which produces the crudest oil in OPEC, has a particularly frequent impact on oil prices. When OPEC production objectives are lowered in the past, crude oil prices have risen.

These organizations alter their oil production capabilities in response to the highly dynamic economic and geopolitical developments, which influences the oil supply levels and causes volatility in oil prices.

How does OPEC change the oil price?

In order to alter the price of oil, OPEC modifies production levels. Its members can lower their production quotas to reduce supply if they desire to raise the price of oil. Alternatively, if they want to boost supply and lower the price of oil, they might raise their production limits. Oil prices will go in the desired direction if demand doesn't change.

Despite OPEC's best attempts to keep oil prices under control, there may occasionally be brief price surges brought on by world crises.

These include incidents like the Abqaiq-Khurais attack in September 2019 that targeted a Saudi Arabian oil processing complex. Up until early October 2019, the aftermath reduced Saudi Arabia's oil production by about half, which raised world oil prices.

Therefore, before speculating on oil prices, traders may want to consider additional economic data and news sources in addition to the most recent OPEC quotas.

Why do OPEC countries agree to oil quotas?

The stated objectives of OPEC are to "coordinate and unify the petroleum policies of its member countries and ensure the stabilization of the oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income for producers, and a fair return on capital for those investing in the petroleum industry."

Even while OPEC claims to have a noble objective, it is a cartel. It works to control pricing, increase profits, and reduce competition among its members. It has frequently been charged with anti-competitive behavior, such as profiteering by restricting supplies and purposely producing oil surpluses to lower prices and bankrupt rivals (like US shale producers).

Politics is sometimes involved. However, OPEC meetings can end in a stalemate if members are not able to unanimously agree on new production volumes. Reaching a consensus is not easy as member countries will generally seek to maximize their own production levels, and limit other countries, in order to benefit from the best possible prices and volumes. This problem is sometimes exacerbated by unrelated political tensions between nations. Friction between members can also arise if any country has exceeded the previously agreed quotas, as this can reduce the prices received by the group.

What is the OPEC meeting?

The OPEC meeting is a twice-yearly session in which the organization sets oil production quotas for each of its 13 member countries. These quotas are important because they affect the global supply of oil and, in turn, its price.

OPEC meeting format

Ordinary meetings are held twice a year, at the organization’s headquarters in Vienna. Generally, these meetings are six months apart. Extraordinary meetings – meetings that occur outside of the biannual schedule – can also be arranged for matters that cannot wait until the organization is next meant to meet.

Decisions are announced via a press conference on the day of each meeting, with most decisions becoming effective 30 days later (except where another date is agreed, upon or the decision is vetoed by a member before it is implemented).

OPEC also publishes monthly and annual oil market reports, as well as an annual world oil outlook report which assesses the long-term prospects for oil.

OPEC Calendar of Meetings and Reports

OPEC releases monthly and annual reports. Monthly reports cover issues facing the global oil market and provide a market outlook for the coming year. Whereas annual reports focus on reviewing OPEC member countries' performances as well as looking at the current state of the market.

OPEC members also hold meetings twice a year. You should look out for when these meetings take place, as they may make big decisions regarding their combined output.

According to opec.org, the next OPEC events scheduled are:

  • 2022-Nov-14: OPEC Monthly Report
  • 2022-Dec-13: OPEC Monthly Report

View our fast-updating and interactive economic calendar for important events and releases that affect the commodities markets, including the weekly EIA Oil report and Natural Gas storage report.

How to trade the next OPEC Meeting?

Other than buying the physical commodity itself, there are a variety of different ways to attempt to speculate from changing prices in oil:

Trading Oil Directly

The type of investors that typically invest directly in oil is those who are willing to take on the added risk associated with futures, options, and speculation. Oil and other commodities can also be used for diversification and hedging strategies.

Oil Futures

Oil futures are contracts in which two parties agree to exchange a set amount of oil at a set price on a set date. If the price of oil rises, the contract may become more valuable, and the owner of the contract could sell it for a profit. If it falls, the contract could lose value and, in turn, the owner could lose money when selling.

The two most popular types are Brent Crude and West Texas Intermediate (WTI), which are traded on the Intercontinental Exchange (ICE) and New York Mercantile Exchange (NYMEX) respectively. They are used as benchmarks for global oil prices, as well as economic health.

Oil Funds

Another direct method of gaining exposure to oil is through commodity-based oil exchange-traded funds (ETFs). Oil ETFs trade on a stock exchange like stocks and track the performance, with fewer fees, of an underlying commodity index, such as a crude oil index.

For example, as of Feb 26, 2022, one contract of the U.S. Oil Fund (USO) at $65 would give you exposure to less than one barrel of oil priced at $100 per barrel. The fund's investment objective is to provide daily investment results corresponding to the daily percentage changes in the spot price of West Texas Intermediate (WTI) crude oil.

Trading Oil Indirectly

The type of investors who prefer indirect exposure to oil is typically those who do not want the added risk of direct exposure to oil as a commodity.

Energy ETFs

For example, an energy sector mutual fund or ETF is one way to gain broad exposure to oil and energy stocks with less sensitivity to oil price fluctuations than direct oil. They invest solely in the stocks of oil and oil services companies and come with lower volatility.

Such examples are iShares Global Energy ETF (IXC) or T. Rowe Price New Era Fund (PRNEX).

Oil Stocks

Investors can also invest in oil indirectly by buying shares in individual oil companies. There are three types of oil companies: upstream companies, which drill for oil; midstream companies, which operate pipelines for transporting crude oil; and downstream companies which refine and sell the end products.

>> Learn more about investing and trading in Oil

Why trade OPEC meetings with CAPEX.com?

With us, you won’t have to take ownership of the underlying asset or worry about physical delivery.

  • Trade commodities on margin - Trade CFDs to gain full exposure with just a small initial deposit. CFDs are financial derivatives that allow traders to speculate on both rising and falling markets as well as trade using leverage.
  • Range of markets - Go long or short on US Crude, Brent Crude, Heating Oil, US Oil Fund, and more.
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Alternatively, you can invest in oil stocks, as well as energy and oil ETFs with ownership. With CAPEX, you can trade 2,000+ CFDs on shares, indices, commodities, ETFs, bonds, forex, and cryptocurrencies and invest in +5.000 stocks and ETFs with ownership.

Getting Started

Here is a step-by-step guide to help you get started with CAPEX.com:

  • Choose which type of account you want to use. Your first concern should be your risk appetite and time horizon. If you want to buy and hold oil assets, open an investing account. If you want to speculate on oil markets' price movements (including falling prices) with zero commission and leverage, open a CFD trading account.
  • Create an account. Regardless of your chosen account, you need to register and complete the KYC process to verify your identity.
  • Fund your account with fiat money. Before buying and trading any oil assets, you need to fund your exchange account with U.S. dollars, Euros, or other currencies.
  • Select your oil markets. Launch CAPEX WebTrader or install the CAPEX.com app and search your favorites. Stay up to date with our Oil analysis and price predictions.
  • Place a buy order for your chosen crypto index share. Follow the steps required by the trading platform to submit and complete a buy or sell order for one or more oil markets.

Free resources

Before you start investing and trading in Oil, you should consider using the educational resources we offer, like CAPEX Academy or a demo trading account. CAPEX Academy has lots of courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more-informed investment decisions.

Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for stock investors who are looking to make a transition to leveraged trading.

FAQs

What Does OPEC Do Exactly?

OPEC coordinates and consolidates the policies regarding petroleum production and output involving its member nations. It promises a stable oil market that offers petroleum supplies that are both efficient and economic.

What Is OPEC+?

In December of 2016, OPEC formed an alliance with other oil-exporting nations that were not a part of the organization, creating an entity that is commonly referred to as OPEC+, or OPEC Plus. Prominent members of OPEC+ include Russia, Mexico, and Kazakhstan. Working in coordination with additional oil-exporting countries makes the organization even more influential when it comes to international energy prices and the global economy.

What Are the Main Goals of OPEC?

OPEC's main goal is to maintain oil prices at a profitable level for its members while keeping the market as free as possible from restrictions. The organization ensures its members receive a steady stream of income from an uninterrupted supply of oil.

How Does OPEC Control Oil Prices?

OPEC regulates the supply of oil in order to influence the price of the commodity on the world market. The group can achieve this by coordinating supply cuts when the price is deemed too low and supply increases when its members believe prices are too high.

How Do Oil Prices Affect the U.S. Economy?

Oil prices have a multifaceted impact because of the diversity of industries operating within the U.S. economy. Higher oil prices can help create jobs and drive investments as it begins to make economic sense for companies to develop high-cost shale oil projects. However, elevated oil prices affect consumers and businesses by increasing transportation and manufacturing costs. Lower oil prices have the opposite impact—limiting unconventional oil activity but benefiting other sectors that are sensitive to fuel costs.

The information presented herein is prepared by ae.capex.com and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only.

Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience or current financial situation.

Key Way Markets Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.
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