Why has OPEC+ Cut Oil Production?

Context

The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) officials had decided to reduce oil output by a modest 100,000 BPD due to recent falling gas prices.

Probable Question

Amidst the rise and fall of oil prices, OPEC+ has decided to cut off the production of oil. Explain OPEC+, the causes for slashing oil production, and its impact of it on other countries.

About OPEC+

• Establishment: The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) was established in 1960.
• Five founding Countries: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
• Member Countries:
  • Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Gabon (1975), Angola (2007), Equatorial Guinea (2017), and Congo (2018).
  • OPEC now has 13 member states with the addition of another 11 allied major oil-producing countries that include Russia, the grouping together is known as OPEC+.
  • Qatar (1961), Indonesia (1962), and Ecuador (1973) were also members but they withdrew their membership later.
• The objective of OPEC+: 
  • To coordinate and unify the petroleum policies of its Member Countries.
  • To 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.
  • A fair return on capital for those investing in the petroleum industry.

• Seven Sisters: It is a western multinational oil company that dominated OPEC+.
• Significance of the OPEC:
  • It sought to give the oil-producing nations greater influence over the global petroleum market. 
  • The member states account for roughly 40% of the world’s crude oil and 80% of the globe’s oil reserves. 
  • They also meet every month to determine how much oil the member states will produce.

Related: Taxation on Petrol and Diesel

Reason for Slashing Production

• Recession: The price of oil dropped sharply due to fears of a recession in Europe.
• Less Demand: The reduced demand from China because of its lockdown measures also dropped the price.
• Boost Price: 
  • The reductions in production would boost prices and be beneficial for the Middle Eastern member states.
  • The cuts in production are seen as a way to protect profits. 
  • Increased oil prices have helped Saudi Arabia, one of the founding members of OPEC, become one of the world’s fastest-growing economies.
• Russia’s Strategy: The sanctions imposed on Russia by the West, raises the possibility that Russia might be influencing OPEC, to make it more expensive for the West to extend energy sanctions on Russia. 

Impact of the OPEC+ Decision

• United Arab Emirates (UAE) and Kuwait: The countries are said to be concerned particularly, as extended cuts would interfere with their plans to increase oil output capacity.
• The US: The US, which is not part of OPEC+, has repeatedly asked OPEC+ to increase oil production, thus the move is likely to be highly detrimental to the US. 
• India: 
  • India is dependent majorly on imports for the production of crude oil.
  • The cut in production can increase the prices and can lead to inflation in India.
  • This can also have a significant impact on the consumer price index (CPI) and the rate of inflation in terms of CPI at 5% in FY23 due to the rise in oil price, which depicts: 
    • In case the price of oil goes up by 10%, the price of the goods in India will be up by 5%.

News Source: The Indian Express

https://indianexpress.com/article/explained/explained-global/what-is-opec-and-why-have-they-slashed-oil-production-8191696/

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