OPEC Basket – Definition

Cite this article as:"OPEC Basket – Definition," in The Business Professor, updated August 6, 2019, last accessed August 11, 2020, https://thebusinessprofessor.com/lesson/opec-basket-definition/.

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OPEC Basket Definition

The OPEC basket refers to the weighted mean or average of oil prices that OPEC member countries throughout the world maintain. Countries who are members of the Organization of the Petroleum Exporting Countries (OPEC) provide insights about the data based on which the OPEC basket is created. The basket refers to a standard or set reference point for countries that analyze the oil prices and the consistency of the international oil market.

In today’s date, the prices of many countries including Algeria, Ecuador, Iran, Iraq, Nigeria, Saudi Arabia, United Arab Emirates, and a lot more are averaged in the OPEC market. The nations which are the members of OPEC are considered for arriving at the weighted average of oil prices. However, there are many other nations such as U.S., China, Russia, etc. that manufacture oil on a huge scale, but are not considered to be OPEC members. As per the statistics, the member countries of OPEC manufacture 40% of the oil produced globally.

A Little More on What is the OPEC Basket

The OPEC basket is also called the OPEC reference basket of crude (ORB) or the OPEC reference basket.

The OPEC basket considers weighted average as a basis for particular petroleum blends received from nations covered under OPEC. A weighted average refers to a mean that is ascertained by assigning values to statistics derived from some specific variables. When it is about the OPEC basket, the interpreting variable is the weight that the crude oil has.

There are some OPEC oils that have more sulfur content as compared to crude oils from other nations. Crude oils having more percentage of sulfur are costlier for refining. That’s why the price of the OPEC basket is lower than the reference prices of other oils.

Here are some of the crude oil indices:

  1. West Texas Intermediate (WTI) crude oil is lighter in nature, and of premium quality, and has a selling price of $5-$6 higher than the OPEC basket price.
  2. The Brent blend, refined in Northwestern Europe, has a selling price of around $4 more than the OPEC basket.

The prices of oil have a huge significance on the international economy as petroleum becomes the base method for assessing the way products are manufactured and distributed. Oil is used when trucks transport goods from the factory to the final consumer, when tractors cultivate farms, when customers use automobiles such as cars to go to the grocery store, and a lot more. OPEC offers a method to the member countries of OPEC to stabilize their own market conditions by increasing or decreasing production depending on demand and supply.

The Price of OPEC Basket Today

The ORB was $71 per barrel on April 26, 2018 that was more than that of last month ($66.80).In 2017, the ORB was $51.47 and kept steadily increasing throughout the year 2017. If we analyze the average price of last 10 years, it was around $76. It states that the current increase has helped prices in bouncing back to the normal position toward the average of last 10 years.

The U.S. Energy Information Administration (EIA) offers an average of international spot prices of oil on a weekly basis. The New York Mercantile Exchange (NYMEX) followed by many other exchanges provide oil derivatives and futures.

References for “OPEC Basket

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