OPEC (Organization of Petroleum Exporting Countries) and its allies led by Russia have agreed on a gradual withdrawal COVID-19 Crude oil prices fell to around $72 a barrel on Monday due to related production cuts till September 2022. OPEC+ has decided increase in total production 4,00,000 barrels per day per month until the remaining part of the group’s 10 million barrels per day production cut announced in April 2020 is completely eliminated. The decision also ends a standoff between the United Arab Emirates and other OPEC+ countries over the extension of a supply agreement to increase production.
Indian Express Examines the background and implications of this decision.
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What is background?
The OPEC+ grouping of countries signed a two-year agreement in April 2020 to drastically cut crude production to deal with the sharp fall in the price of crude oil as a result of COVID-19. pandemic epidemic. Brent crude fell below an 18-year low of $20 a barrel in April 2020 as economic activity crashed around the world as countries deal with the COVID-19 pandemic.
However, crude oil prices have recovered significantly above pre-Covid-19 levels, prompting India and other developing countries to roll back production cuts. The current price of Brent crude is about 39 percent higher than the price of crude at the beginning of the year. The sharp rise in crude oil prices has contributed to the all-time high prices of petrol and diesel across India.
What was the standoff between UAE and other OPEC+ countries?
The initial proposal from OPEC+ countries linked a gradual increase in output to a six-month extension of the production agreement, which was due to expire in April 2022. The UAE did not agree with the proposal that the reference production level be used to calculate supply. The quota for OPEC+ countries does not represent the UAE’s actual supply capacity and the increase in supply should not be linked to the proposed expansion without modification to the reference production levels.
OPEC+’s final decision on rolling back production cuts includes an extension of the production agreement until September 2022, but also provides Increase in reference production levels for Saudi Arabia, Russia, the United Arab Emirates, Kuwait and Iraq.
How does it affect India?
The announcement of increase in production levels as well as fears of an increase in mobility restrictions following the rise in Covid-19 cases have restrained the sustained rise in crude oil prices. Brent crude prices rose above $77 a barrel in July on a possible impasse in OPEC+ talks on production levels.
Petrol and diesel prices in India have already seen an increase of 21.7 percent since the beginning of the year. Petrol is currently being sold at Rs 101.8 per liter and diesel at Rs 89.87 per liter in the national capital.
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