[ above is a photo I took in Riyadh, Saudi Arabia]
The 12 members of OPEC are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Although there are 12 members, only one counts: Saudi Arabia.
As you will know from Oil 101, there has been an OPEC quota system in place since the 1970's , with each member country restraining supply to keep prices high. OPEC itself modeled itself on US regulators (the TRC) that had controlled global oil prices since the 1930s.
OPEC thought of itself as the Fed of oil, controlling global prices by making slight increases and decreases in physical supply. This system had always been a little shaky due to individual members cheating by producing above quotas. The quota system became less and less effective (see table below) as global conventional onshore oil production peaked and declined in 2005 and we shifted to high cost oil supplies such as tight oil fracking and oil sands.
There hasn't been a formal OPEC cut since December 2008. OPEC's individual member quota system was finally scrapped in December 2011.
In effect, OPEC is dead.
For many years now, Riyadh, and in particular one individual, Ali Al-Naimi, Saudi Arabia's now 79 year old oil minister, has set global oil prices alone (see chart below).
OPEC meets next in Vienna on November 27.
What the oil market cares about most at this meeting are the words out of the mouth of the Saudi oil minister, Ali Al-Naimi, and any Saudi Arabian physical oil market action - hence the intense interest in Saudi OSP (Official Selling Price) oil price changes yesterday. Nothing else matters in relation to OPEC.
So why meet at all? When the Saudis do cut they use the cover of OPEC to deflect any criticism that may be directed at the global oil price controller.
What do the Saudis need to do to stop prices from falling further? Until US oil supply growth begins to stall the Saudis need to cut by up to 1.5 million barrels per day. Will this cut happen? Only one man knows for sure.