FAQs - The Oil Market

The oil market, what are oil futures? What is OPEC and what is the IEA? Some main questions answered for you below regarding oil: FAQs, The Oil Market Oil futures are part of the derivatives family of financial products.

How are Oil Futures Traded?

In the case of crude oil futures, the main futures exchanges are the New York Mercantile Exchange - NYMEX - and the Intercontinental Exchange - ICE - where West Texas Intermediate - WTI - and North Sea Brent crude oil are traded respectively.

These exchanges trade what is referred to as 'light- sweet' crude oil and a single contract, or 'lot', calls for the purchase or sale of 1,000 barrels of oil. Traders can buy and sell oil for delivery several months or years ahead.

The bulk of activity in commodity futures markets is typically concentrated on oil for delivery in the next three months. However, in the past five years, activity has increased substantially for deliveries much further into the future as more investors put money into commodity indices.

What is OPEC?

OPEC is a permanent intergovernmental organization, currently consisting of 12 oil producing and exporting countries, spread across three continents America, Asia and Africa. The members are Algeria, Angola, Ecuador, the Islamic Republic of Iran, Iraq, Kuwait, the Socialist People’s Libyan Arab Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates & Venezuela.

These countries have a population of more than 380 million and for nearly all of them, oil is the main marketable commodity and foreign exchange earner. Thus, for these countries, oil is the vital key to development – economic, social and political. Their oil revenues are used not only to expand their economic and industrial base, but also to provide their people with jobs, education, health care and a decent standard of living.

Is there a relation to OPEC and crude oil prices?

One of the most common misconceptions about OPEC is that the Organization is responsible for setting crude oil prices. Although OPEC did in fact set crude oil prices from the early 1970s to the mid-1980s, this is no longer the case. It is true that OPEC's Member Countries do voluntary restrain their crude oil production in order to stabilize the oil market and avoid harmful and unnecessary price fluctuations, but this is not the same thing as setting prices.

What is the IEA?

The IEA was formed in 1974 as an autonomous body within the Organization for Economic Co-operation and Development (OECD). The IEA has established a legal framework for international collaboration and carries out an energy technology programme among its 23 member countries including R&D, demonstration, and information exchange.

The IEA collaboration takes place under the Implementing Agreements, which currently cover a wide assortment of energy technologies in fossil fuels, renewable energy, nuclear fusion research and efficient energy end-use.

The Implementing Agreements "mechanism" is flexible and accommodates collaboration among different entities, such as governmental institutions, universities, utilities and private companies.

Implementing Agreements are supervised by the IEA Committee on Energy Research and Technology (CERT). As far as renewable energy sources are concerned, The Working Party for Renewable Energy Technologies (REWP) has a mandate from CERT to identify technologies likely to contribute to the IEA goals, to promote collaborative R&D and to initiate, promote, and review Implementing Agreements in this field.

Information on other IEA and OECD projects are available at the CADDET Renewable Energy website - a multi-language source of global information on proven, commercial applications covering the full range of renewable energy technologies.

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