OPEC+ agree to deep cuts

OPEC+ agree to deep cuts

News: OPEC+ countries led by Saudi Arabia agreed to its deepest cuts to production since the 2020 COVID pandemic, despite a tight market and opposition to cuts from the United States and others. 

Why cut in production?
•    Oil prices skyrocketed after Russia’s invasion of Ukraine and have since begun to soften over the past few months, before dropping sharply to under USD 90 in September,2022 due to 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 demand for oil, and the cuts are seen as a way to protect profits.
•    It is possible that Russia might be influencing OPEC, to make it more expensive for the West to extend energy sanctions on Russia.

Impact:
•    Recently, the European Union had announced its plan to implement a price cap on oil exports from Russia. Under the plan, countries will only be permitted to purchase Russian oil and petroleum products transported via sea that are sold at or below the price cap. However, the recent decision to reduce the supply is likely to keep the global oil prices high, allowing Russia to continue aiming for significant revenue from its crude export.
•    The move will impact US more this time around which has repeatedly called to increase oil production. The US will soon have the midterm congressional election and Joe Biden wanted US gasoline prices to be low.

Impact on India:
•    India imports nearly 85% of its crude requirement, the oil import bill will rise on account of the rise in prices. The rise in import bills will not only lead to inflation and a rise in the Current Account Deficit (CAD) and fiscal deficit but also weaken the rupee against the dollar and hurt stock market sentiment.
•    India was “very confident” of navigating a planned output cut by the oil producers’ cartel, Opec Plus, Petroleum and Natural Gas Minister Hardeep Singh Puri has said. 

What is OPEC+?
•    Established in 1960 by founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, OPEC has since expanded and now has 13 member states.
•    Member countries - Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, Venezuela. Qatar terminated its membership in January 2019. 
•    With the addition of another 10 allied major oil-producing countries, the OPEC is known as OPEC+. OPEC+ countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
•    Its mandate is to manage the supply of oil, set the price of oil in the world market, and avoid fluctuations that might affect the economies of both producing and purchasing countries. Its membership is open to any country that is a substantial exporter of oil and which shares the ideals of the organization.