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Crude oil prices are intricately tied to global supply and demand dynamics, with economic growth emerging as a pivotal factor shaping the demand for petroleum products and, consequently, crude oil. The growth of economies plays a significant role in driving up the demand for energy, particularly in the transportation sector, where petroleum products like gasoline and diesel fuel are vital for moving goods from producers to consumers. Moreover, numerous countries heavily depend on petroleum fuels for various purposes, including heating, cooking, and electricity generation, further contributing to the demand for crude oil-derived products. Notably, petroleum products derived from crude oil and other hydrocarbon liquids constitute approximately one-third of the world’s total energy consumption.
The Organization of the Petroleum Exporting Countries (OPEC) holds substantial influence over oil prices as it sets production targets for its member nations. OPEC consists of countries boasting some of the largest oil reserves globally. As of the beginning of 2021, OPEC members controlled a staggering 72% of the world’s proven crude oil reserves, including lease condensate. In terms of crude oil production, OPEC members collectively accounted for 37% of the total global output in 2021.
OPEC employs the strategy of managing oil production among its member countries by establishing crude oil production targets, often referred to as quotas. The effectiveness of these quotas, however, varies due to the decentralized nature of production decisions within individual member nations. Consequently, achieving full compliance with OPEC quotas proves challenging, as the discretion to adjust production ultimately rests with each member country. This intricate interplay of global economic forces and geopolitical dynamics underscores the complex nature of the crude oil market.