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 supplies 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.
The Next OPEC Meeting - Quick Guide
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 influence the oil supply levels and cause 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
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.
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