What Drives Global Crude Oil Prices? Supply: Non-OPEC

Oil production from countries outside the Organization of the Petroleum Exporting Countries (OPEC) currently represents about 60 percent of world oil production. Key centers of non-OPEC production include North America, regions of the former Soviet Union, and the North Sea.

In contrast to OPEC oil production, which is subject to central coordination, non-OPEC producers make independent decisions about oil production. Also, in contrast to OPEC, where oil production is mostly in the hands of national oil companies (NOCs), international or investor-owned oil companies (IOCs) perform most of the production activities in non-OPEC countries. IOCs seek primarily to increase shareholder value and make investment decisions based on economic factors. While some NOCs operate in a similar manner as IOCs, many have additional objectives such as providing employment, infrastructure, or revenue that impact their country in a broader sense. As a result, non-OPEC investment, and thus future supply capability, tends to respond more readily to changes strictly in market conditions.

Producers in non-OPEC countries are generally regarded as price takers, that is, they respond to market prices rather than attempt to influence prices by managing production. As a result, non-OPEC producers tend to produce at or near full capacity and so have little spare capacity. Other things being equal, lower levels of non-OPEC supply tend to put upward pressure on prices by decreasing total global supply and increasing the "call on OPEC." The greater the call on OPEC, the greater is its likely ability to influence prices.

Source: US Energy Information Administration