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OPEC (Organisation of Petroleum Exporting Countries)

OPEC (Organisation of Petroleum Exporting Countries)

CONTEXT:

  • OPEC (Organisation of Petroleum Exporting Countries) and its allies led by Russia have agreed to gradually withdraw Covid-related production cuts by September 2022, leading to crude oil prices falling to about $72 per barrel on Monday.

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KEY DETAILS:

  • OPEC+ has decided to increase overall production by 4,00,000 barrels per day every month till the remaining portion of the group’s 10 million barrel per day production cut, announced in April 2020, is completely phased out.

  • The decision also ends a standoff between the UAE and other OPEC+ countries on tying an extension of the supply agreement to increases in production.

BACKGROUND:

  • The OPEC+ group of countries had in April 2020, entered into a two-year agreement which

    • Entailed steep cuts in crude oil production to deal with a sharp fall in the price of crude oil as a result of the Covid-19 pandemic.

    • The price of Brent crude hit an 18-year low of under $20 per barrel in April 2020 as economic activity around the world crashed as countries dealt with the Covid-19 pandemic.

  • Crude oil prices have, however, since recovered to well above the pre-Covid-19 levels leading to India and other developing countries calling for a withdrawal of production cuts.

  • The current price of Brent crude is about 39 percent higher than the price of crude at the beginning of the year.

STAND-OFF BETWEEN OPEC+ AND UAE

  • The initial proposal by OPEC+ countries had tied the gradual increase in production to a six-month extension of the production agreement which was set to expire in April 2022.

  • The UAE did not agree to the proposal stating that the reference production levels used to calculate supply quotas for OPEC+ countries did not represent the actual supply capacity of the UAE and

    • That an increase in supply should not be tied to the proposed extension without a revision in reference production levels.

IMPACT ON INDIA:

  • India has already seen a 21.7 percent increase in the price of petrol and diesel since the beginning of the year.

    • Petrol is currently retailing at Rs 101.8 per litre in the national capital

    • Diesel is retailing at Rs 89.87 per litre

  • Rise in fuel prices directly impacts costs incurred towards essential goods that have to be transported over long distances.

Organization of the Petroleum Exporting Countries (OPEC)

  • It is an intergovernmental organization or cartel of 13 countries.

  • Founded on 14 September 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela),

  • It has since 1965 been headquartered in Vienna, Austria, although Austria is not an OPEC member state.

  • As of September 2018, the 13 member countries accounted for an estimated 44 percent of global oil production and 81.5 percent of the world's "proven" oil reserves, giving OPEC a major influence on global oil prices that were previously determined by the so-called "Seven Sisters" grouping of multinational oil companies.

  • Members-Iran, Iraq, Kuwait, Saudi Arabia ,Venezuela, Libya, the United Arab Emirates, Algeria, Nigeria, Gabon, Angola, Equatorial Guinea and Congo

  • OPEC+ Countries-Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan

SOURCE: Indian Express