Dec 7, 2007 8:51 am US/Central
Good Question: What Is OPEC And What Do They Do?
(WCCO)
The $2.81 we found tonight for a gallon of regular unleaded gasoline is about a dime cheaper than we paid last week, and experts say it could drop further.
That's because major oil-producing countries announced Thursday that they will keep the supply of oil unchanged.
Those countries make up what's called OPEC, what some Americans would categorize as a four-letter word. The decisions they make can impact what we pay at the pump.
So some WCCO viewers are asking: what exactly is OPEC and can it really pump up our prices?
It stands for the Organization of Petroleum Exporting Countries. It currently includes: Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela, and Ecuador.
"It's a cartel. There's no question about it," said David Morris, an energy policy analyst.
According to Morris, OPEC was founded in 1960 because oil producing countries were tired of big oil companies controlling the oil supply.
"Their goal is to get a fair return on their oil," he said. "So they would say they are actually smoothing and stabilizing oil prices."
When OPEC meets like they did this week, they either increase, decrease, or leave oil production unchanged.
"OPEC doesn't set prices. What it sets is output and each country gets a quota," said Morris. "In some ways, it's a supply management scheme and the price will go up of course if the supply goes down."
This is because OPEC countries control two-thirds of the world's oil reserves and 45 percent of world oil production. It was OPEC that staged the 1973 oil embargo that drove up prices at American pumps.
"So that was the first exercise of power by OPEC and that's when it became a household name," said Morris.
However, OPEC's influence on the global price of oil is not what it used to be, even if none of the countries exporting seem to be able to keep up with current demand.
"The largest producer of oil in the world right now is not in OPEC and it's not Saudi Arabia. It's Russia," said Morris. "The United States, back in 1973, imported 30 percent of our oil. We now import 66 percent. No matter how fast new oil comes into the marketplace the demand for oil is exceeding it."
OPEC is often viewed as the culprit when oil prices jump like they've done recently but, in fact, OPEC has not changed output in months. Oil prices are now largely influenced by speculators who bid up the price.
Of course, the oil producing nations are making gallons of money because of it.
(© MMX, CBS Broadcasting Inc. All Rights Reserved.)
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