What Is OPEC and How Does It Affect Oil Prices?

What Is OPEC and How Does It Affect Oil Prices? 12.03.2017, 8*06 p.m.
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What Is OPEC and How Does It Affect Oil

Prices?
After more than 50 years, OPEC continues to move the oil market.
Matthew DiLallo (TMFmd19)
Jul 16, 2016 at 10:00AM
IMAGE SOURCE: GETTY IMAGES.
When OPEC speaks, the oil market listens. While it cannot control the market price of oil, it can influence its direction. This
impact leads to some pretty wild swings in oil prices, which then aect the profits oil companies' earn from production.
A brief history of OPEC

The Organization of the Petroleum Exporting Countries, or OPEC as it is more commonly known, was founded in 1960
by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela as an intergovernmental organization. Nine other nations later joined:
Qatar (1961), Indonesia (1962), Libya (1962), United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973),
Gabon (1975), and Angola (2007). Ecuador, Indonesia, and Gabon dropped out for several years before rejoining in 2007,
2015, and 2016, respectively.
OPEC's purpose is to:
Co-ordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for
https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 1 din 14

petroleum producers; an ecient, economic and regular supply of petroleum to consuming nations; and a fair return on
capital to those investing in the industry.
While OPEC's objective is to maintain order in the oil market, that has not always been the case. The most famous example
is the Arab oil embargo. In Oct. 1973 a group led by the Arab majority of OPEC, as well as non-members Egypt and Syria,
declared a steep cut in oil output and an oil embargo against the U.S. and other nations that supported Israel in the Yom
Kippur War. This led to a sharp increase in oil prices, from $3 to $12 per barrel, causing panic and a period of energy
rationing.
How OPEC aects prices

In addition to production cuts, one of the levers OPEC uses to impact prices is production quotas. In 1982, OPEC
introduced mandatory quotas among its member nations to control supplies. In doing so, it became a price-setting cartel
instead of a group of price-taking commodity producers. That said, OPEC has not always gotten these quotas correct,
which has had the opposite of the desired impact on prices. For example, in the late 1990s, it misread the market by
raising its production ceiling 10% without taking into account the impact to demand from the Asian financial crisis. This
caused prices to plunge, forcing OPEC to lead three rounds of production cuts to get the market back into balance.
More recently, OPEC pushed its output higher to push down prices. This marked a notable shift in strategy, with OPEC
members going from protecting oil prices to protecting their share of the oil market.
This change is partially in response to rising production from non-member nations, including surging production from U.S.
shale, the Canadian oil sands, and oshore sources. However, the decision destabilized the oil market and led to
tremendous oil price volatility.
The market's current instability causes a swift reaction to news that OPEC might shift away from this strategy. For example,
in early 2016, OPEC held meetings with non-member nations Russia and Oman to discuss a production freeze. Those
meetings helped fuel a fierce rally, with oil prices rebounding 50% o the bottom. However, the groups failed to strike a
deal because not all members were on board. That said, the talks alone had the desired eect of pushing prices higher.
IMAGE SOURCE: GETTY IMAGES.

How OPEC impacts oil companies

Before the recent collapse in crude prices, there was a generally held belief that OPEC wanted crude to stay above $100 a
barrel. While OPEC never ocially sets a target price for oil, many of OPEC's member nations need a certain oil price to
balance their budgets. For example, according to the International Monetary Fund, Saudi Arabia needs oil to average $106
while ING Bank data suggests Ecuador, Nigeria, and Venezuela need oil above $120 a barrel.
This belief that oil would stay reasonably stable led oil companies to make huge bets on large oil projects. For example, big
oil behemoths Royal Dutch Shell (NYSE:RDS-A)(NYSE:RDS-B), ExxonMobil (NYSE:XOM), and Total (NYSE:TOT), along
with several international partners, invested $50 billion in developing the Kashagan oil field in the Caspian Sea. While
Kashagan is considered the largest oil discovery in the last 30 years, it requires high oil prices to break even. According to
the chairman of KazMunayGas, one of the partners in the project, Kashagan "can be economically viable with oil prices
standing at $100 per barrel." That said, another industry source stated that Kashagan would cease to be profitable at $80
oil.
Either way, the project has been a debacle for Exxon and Shell, which own a third of the project that they initially expected
would cost $10 billion and be on line in 2005. However, after several delays, the project still isn't producing any oil, and
when it restarts later this year, it could take five years before it reaches profitability. It is a project that Exxon, Shell, and
Total likely would not have pursued if they did not expect OPEC to keep oil prices stable over the long term.
Investor takeaway
OPEC has both been a blessing and a curse on the oil market. When it provides stability, it emboldens oil producers to
make investments for the future. However, when OPEC changes course, it can have a devastating impact on producer
profits.
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AUTHOR
Matthew DiLallo
(TMFmd19)
Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University
with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest
news and analysis of the energy and materials industries:
Follow @matthewdilallo 1,218 followers
ARTICLE INFO
Jul 16, 2016 at 10:00AM
Energy, Materials, and Utilities

STOCKS
Royal Dutch S
NYSE:RDS-A
$51.74 ! $0.40 (0.78%)
ExxonMobil
NYSE:XOM
$81.61 " $0.06 (-0.07%)
Royal Dutch S
NYSE:RDS-B
$54.76 ! $0.35 (0.64%)
Total
NYSE:TOT
$50.25 ! $0.47 (0.94%)
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Why Marathon Oil, Signet Jewelers, and

Immunomedics Jumped Today
These stocks gained ground on an important anniversary for the bull market. Find out why.
Dan Caplinger (TMFGalagan)
Mar 9, 2017 at 4:37PM
Thursday marked the eighth anniversary of the beginning of the current bull market in stocks. Back in 2009, investors
thought that the financial crisis might result in the end of financial markets worldwide, but instead, stocks bounced back,
and major market benchmarks have since tripled or more from their lows. Today, investors celebrated the market milestone
in a relatively calm way, with only minor moves from popular indexes. But some stocks did much better, and Marathon Oil
(NYSE:MRO), Signet Jewelers (NYSE:SIG), and Immunomedics (NASDAQ:IMMU) were among the best performers on the
day. Below, we'll look more closely at these stocks to tell you why they did so well.
Marathon buys into the Permian Basin

Shares of Marathon Oil climbed 8% after the oil and gas exploration and production company made some strategic moves
to shift the focus of its business eorts. Marathon acquired 70,000 net surface acres in the Permian Basin, spending $1.1
billion to make the purchase from a privately held energy company. The acquisition includes more than 50,000 net acres in

the northern Delaware Basin region of the Permian, and along with the deal, Marathon said that it had separately agreed to
sell its Canadian oil sands stake to a venture composed of Royal Dutch Shell (NYSE:RDS-A) and Canadian Natural
Resources (NYSE:CNQ) for $2.5 billion. In combination, the moves put Marathon more squarely into Texas and away from
Canada, and investors seem to think that's the right play for the oil company going forward.
IMAGE SOURCE: MARATHON OIL.
Signet reviews its business practices

Signet Jewelers stock rose 9% in the wake of the company's fourth-quarter financial report. The jeweler said that same-
store sales fell 4.5% during the fourth quarter, but adjusted earnings of $4.03 per share were relatively strong. CEO Mark
Light noted that the company has had to adapt to a tough environment in retail and poor mall trac levels, but it believes
that the integration of the Zale's chain has gone well. Separately, the company also said that it would create a new board
committee aimed at supporting female employees, and an independent review of Signet's business practices will ensure
equal opportunity and workplace expectations in line with correct practices. The moves are likely in response to allegations
of sexual harassment that hit the jeweler recently, and with the stock having lost a third of its value just since the beginning
of the year, some traders attributed the move more to short-covering than to any fundamental improvement in Signet's
business.
Immunomedics hits the pause button

Finally, shares of Immunomedics jumped 19%. Investors were pleased about a Delaware court ruling that ordered a
temporary injunction against a deal that the biopharmaceutical company made with Seattle Genetics (NASDAQ:SGEN), in
which Immunomedics was to license cancer-fighting drug IMMU-132, currently in late-stage clinical trials. Opponents of
the move had argued that the deal was too cheap, with Immunomedics to get just $250 million in cash and up to $1.7
billion in milestone payments and royalties from Seattle Genetics depending on what happens with IMMU-132 in the future.
With activist investors at venBio Select Advisor having won a proxy contest to take control of Immunomedics' board,
shareholders are hoping that a better deal could give the company more potential upside from IMMU-132 going forward.

found.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Seattle Genetics. The Motley Fool has a disclosure policy.

AUTHOR
Dan Caplinger
(TMFGalagan)
Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment
Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com.
With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on
more than 20 years of experience from all angles of the financial world.
Follow @DanCaplinger
ARTICLE INFO
Mar 9, 2017 at 4:37PM
STOCKS

Royal Dutch S
NYSE:RDS-A
$51.74 ! $0.40 (0.78%)
Canadian Nat
NYSE:CNQ
$32.21 ! $0.16 (0.50%)
Seattle Genetics
NASDAQ:SGEN
$67.96 ! $0.86 (1.28%)
Marathon Oil
NYSE:MRO
$16.16 ! $0.09 (0.56%)
Signet Jewelers
NYSE:SIG
$69.81 " $0.21 (-0.30%)
Immunomedics
NASDAQ:IMMU
$6.34 ! $0.33 (5.49%)
READ MORE
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1 Key Metric for Silver Standard Resources

Inc. Investors to Focus On
Silver Standard Resources made a big acquisition last year, and investors need to make sure it
pays off.
Reuben Gregg Brewer (TMFReubenGBrewer)
Mar 12, 2017 at 11:06AM
Last year was an active one for Silver Standard Resources Inc. (NASDAQ:SSRI). The changes it made will have a material
impact on the silver and gold miner's outlook for years to come. But investors need to do some analysis of the numbers to
make sure the performance of assets acquired in 2016 lives up to expectations. And this is one of the most important
metrics to focus on.
The big change

In 2016, Silver Standard acquired Claude Resources, adding the SeaBee and Santoy mines in Canada to its mine portfolio.
These appear to be decent assets with low costs and high-quality ore. The miner now has three operating mines. The real
opportunity here, though, is expansion. And Silver Standard moved quickly on that front, inking a deal with Eagle Plains
Resources to explore land next to the SeaBee property last year, as well.

IMAGE SOURCE: SILVER STANDARD RESOURCES.
The results for 2016 have already proven that the opportunity Silver Standard hoped was there looks to really be there. The
miner's exploration eorts increased SeaBee's gold mineral reserves by an impressive 50% last year. And it's not done
looking yet, which is why you need to watch SeaBee's proven and probable reserves number to make sure it keeps going
up this year. If it doesn't, SeaBee may not be as good of a buy as originally hoped.
Exploring the almost-known

Mining is a complex business. The first step is trying to find a place that you think has gold in it. Then you build a mine.
And then you run it for as long as it's profitable to do so. However, that's a vast simplification of the process, since a mine
expands over time, and eventually, the gold runs out. That's where reserves come into play.
Miners have to categorize reserves into three pots: proven, probable, and indicated. You can think of those categories as
stu we know is there, stu we're pretty sure is there, and stu we really, really hope is there. Mines are often built based
on hope. This is obviously a bit of a simplification, too, but it's enough to understand the importance of the 50% increase in
SeaBee's proven and probable reserves (combined).
RESERVES PROGRESS AT SEABEE IN 2016. IMAGE SOURCE: SILVER STANDARD RESOURCES.
Essentially, Silver Standard explored the "hope" areas and found out that the expected gold was indeed there -- and
economic to mine. You'll want to keep watching the progress here to make sure the SeaBee investment pays o as
expected.

Bigger than you think

It's easy to see why expanding proven and probable reserves at SeaBee is important. The thing is, acquiring that mine
wasn't the only move Silver Standard made in 2016. The miner also eectively jettisoned two other assets, selling its Parral
properties to Endeavour Silver Corp. (NYSE:EXK) and drafting an exploration agreement with Huayra Minerals
Corporation for its Diablillos assets. Both transactions were completed toward the end of 2016.
PLENTY OF ROOM FOR GROWTH AT SEABEE AND ADJACENT ASSETS. IMAGE SOURCE: SILVER STANDARD RESOURCES.
Instead of cash, Silver Standard took economic stakes in the companies acquiring the mines, earn-outs based on project
success, and small royalty streams. So, if the mines work out, Silver Standard will still benefit financially. From a big-picture
perspective, though, these moves were meant to focus the miner on its operating assets. And that means successfully, and
perhaps materially, expanding reserves at SeaBee is extra important -- Silver Standard has eectively doubled down on
what it owns.
One key number

To be honest, reserves are just one piece of a much bigger puzzle. Costs and commodity prices are going to have a bigger
impact on the top and bottom lines. But reserves are the future opportunity, and in Silver Standard's case, that future has
taken on increased importance because of its 2016 moves. So, when you read the miner's quarterly reports this year, keep
a keen eye on the reserves at SeaBee, and make sure this new asset keeps "proving" that it was worth buying.

found.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a
disclosure policy.

AUTHOR
Reuben Gregg Brewer

(TMFReubenGBrewer)
Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.
ARTICLE INFO
Mar 12, 2017 at 11:06AM
STOCKS
Endeavour Silver
NYSE:EXK
$3.12 ! $0.28 (9.86%)
Silver Standar
NASDAQ:SSRI

$9.99 ! $0.25 (2.57%)
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What Is OPEC and How Does It Affect Oil Prices?

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What Is OPEC and How Does It Affect Oil Prices? 12.03.2017, 8*06 p.m.

What Is OPEC and How Does It Affect Oil

IMAGE SOURCE: GETTY IMAGES.

A brief history of OPEC

OPEC's purpose is to:

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 1 din 14

How OPEC aects prices

IMAGE SOURCE: GETTY IMAGES.

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 2 din 14

How OPEC impacts oil companies

Trump's potential $1.6 trillion investment

Click here to get access to the full list!

*Stock Advisor returns as of March 6, 2017

This Stock Could Be Like Buying Amazon in 1997

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 3 din 14

To learn more about it, click here.

Follow @matthewdilallo 1,218 followers

Jul 16, 2016 at 10:00AM

Energy, Materials, and Utilities

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 4 din 14

Why Marathon Oil, Signet Jewelers, and Immunomedics Jumped Today

1 Key Metric for Silver Standard Resources Inc. Investors to Focus On

The Simple Reason Why I Won't Buy Tesla

Your Gut Feeling is Right: 8Point3 Energy Partners is a Buy

Oil and Gas Stock Roundup: Say Goodbye to $50 Oil

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 5 din 14

Why Marathon Oil, Signet Jewelers, and

Marathon buys into the Permian Basin

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 6 din 14

IMAGE SOURCE: MARATHON OIL.

Signet reviews its business practices

Immunomedics hits the pause button

Trump's potential $1.6 trillion investment

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 7 din 14

Click here to get access to the full list!

*Stock Advisor returns as of March 6, 2017

This Stock Could Be Like Buying Amazon in 1997

To learn more about it, click here.

Mar 9, 2017 at 4:37PM

Energy, Materials, and Utilities

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 8 din 14

Better Buy: Apache Corp. vs. Marathon Oil Corporation

This Is Why Marathon Oil Corporation's Stock Slumped 16% in February

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 9 din 14

1 Key Metric for Silver Standard Resources

The big change

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 10 din 14

IMAGE SOURCE: SILVER STANDARD RESOURCES.

Exploring the almost-known

RESERVES PROGRESS AT SEABEE IN 2016. IMAGE SOURCE: SILVER STANDARD RESOURCES.

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 11 din 14

Bigger than you think

One key number

Trump's potential $1.6 trillion investment

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 12 din 14

Click here to get access to the full list!

*Stock Advisor returns as of March 6, 2017

This Stock Could Be Like Buying Amazon in 1997

To learn more about it, click here.

Reuben Gregg Brewer

Mar 12, 2017 at 11:06AM

Energy, Materials, and Utilities

https://www.fool.com/investing/2016/07/16/what-is-opec-and-how-does-it-affect-oil-prices.aspx Pagina 13 din 14