OPEC’s Oil Output Cut
Why in News?
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, announced a surprise reduction of 1.16 million barrels per day (bpd) in their oil production to support market stability.
What is the Background of Voluntary Cut in Oil Production? Background:
- Oil prices skyrocketed after the Russia-Ukraine Conflict and have been fluctuating in recent months, with a drop towards USD 70 per barrel in March 2023 due to concerns of a global banking crisis that could hit demand.
Countries Involved:
- Till yet, Saudi Arabia, Iraq, UAE, Kuwait, Oman, Algeria, Kazakhstan, Russia and Gabon announced a voluntary oil output cut.
- However, not all OPEC+ members are joining the voluntary cuts, as some are already pumping well below agreed levels due to a lack of production capacity.
What will be the Major Impacts of Voluntary Cut in Oil Production?
- Impact on the S: The move is likely to be highly detrimental to the US, which has repeatedly asked the organization to increase oil production.
- Impact on Non-OPEC Countries: The production cuts could have an impact on non-OPEC countries that rely on oil exports, as they may face increased competition in the market.
- Impact on India: India imports nearly 85% of its crude requirement, the oil import bill will rise on account of the rise in prices due to decreased production.
- 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.
- As per Investment Information and Credit Rating Agency (ICRA), for every USD 10 per barrel increase in the price of the Indian crude oil basket, the CAD could widen by USD 14-USD 15 billion, or 4% of GDP.
What is OPEC+?
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 are: Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, Venezuela.
Headquarter: Vienna, Austria.
OPEC produces about 40% of the world’s crude oil and its members’ exports make up around 60% of global petroleum trade.
OPEC+: In 2016, with the addition of another 10 allied major oil-producing countries, the OPEC is known as OPEC+.
OPEC+ countries include 13 OPEC member countries and Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
Objective:
The objective of the organization is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.
