News Highlight:
OPEC sticks with supply cuts as the West tightens sanctions on Russian oil and proposes a price cap
Key Takeaway:
- OPEC+, a group of 23 oil-producing nations led by Saudi Arabia and Russia, will convene on Sunday to decide on the next phase of production policy.
- The highly anticipated meeting comes ahead of potentially disruptive sanctions on Russian oil, weakening crude demand in China and mounting fears of a recession.
- OPEC and non-OPEC oil producers could impose deeper oil output cuts as the influential energy alliance weighs the impact of a pending ban on Russia’s crude exports and a possible price cap on Russian oil.
Reasons for devastating Production:
- Russia’s invasion of Ukraine, fears of a recession in Europe, and reduced demands from China because of its lockdown measures.
- OPEC+ members are concerned that a faltering global economy would reduce the oil demand, and the cuts are seen as a way to protect profits.
- Increased oil prices during the invasion of Ukraine have helped Saudi Arabia, one of the founding members of OPEC, become one of the world’s fastest-growing economies.
- Russia might be influencing OPEC to make it more expensive for the West to extend energy sanctions on Russia
The organisation of the Petroleum Exporting Countries:(OPEC)
- About:
- It is a permanent and intergovernmental organisation.
- It was created at the Baghdad Conference in September 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
- The OPEC Secretariat is its executive organ and is located in Vienna.
- Objectives:
- To coordinate and unify petroleum policies among member countries.
- To secure fair and stable prices for petroleum producers.
- To ensure an efficient, economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the industry.
OPEC Plus:
- About
- With the addition of another ten allied major oil-producing countries, OPEC is known as OPEC+.
- OPEC+ countries include 13 OPEC member countries, Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
- Saudi Arabia is the largest oil producer among OPEC members.
- Russia, which produces more oil than even Saudi Arabia, plays a crucial role, along with OPEC, in influencing global crude oil prices.
- With the addition of another ten allied major oil-producing countries, OPEC is known as OPEC+.
- Significance of this grouping:
- Oil-producing countries to protect their interests amid the rise of the U.S. shale industry.
- U.S. shale oil producers had caused a steep drop in the price of oil by massively increasing U.S. energy supplies and putting the finances of OPEC governments under a lot of strain.
- Western multinational companies largely dominated the global energy market, called the ‘Seven Sisters’.
- Anglo-Iranian Oil Company (now BP),
- Royal Dutch Shell (now Shell),
- Standard Oil Company of California (later Chevron),
- Gulf Oil (now merged into Chevron),
- Texaco (now merged into Chevron),
- Standard Oil Company of New Jersey-Esso (now part of ExxonMobil) and
- Standard Oil Company of New York-Socony (now part of ExxonMobil).
- Oil-producing countries to protect their interests amid the rise of the U.S. shale industry.
Impact on India:
- India is the world’s third-biggest oil importer, and consumers stated that the delay in the decision could threaten the consumption-led recovery in some countries.
- India imports about 84 per cent of its overall crude needs, with over 60 per cent of that coming from Middle Eastern countries, typically cheaper than those from the West.
- Rising oil prices pose fiscal challenges for India, where heavily-taxed retail fuel prices have touched record highs in some parts of the country, threatening the demand-driven recovery.
- India is currently facing record-high prices of petrol and diesel.
Way forward:
- Countries that depend on oil imports to meet their energy needs have been trying to find ways to tackle OPEC’s market power.
- Western countries like the U.S. and the U.K. have been exerting political pressure on OPEC countries to increase their output to prevent the global economy from slipping into a recession.
- The U.S. has also tried to boost its domestic energy production.
- The American shale revolution, driven by private oil producers that were free to exploit resources beneath the ground, cut down America’s dependence on oil from West Asia and made the country a net export of oil.
Pic Courtesy: The Washington Post
Content Source: CNBC