Context:

• The OPEC+ group of countries had, entered into a two-year agreement, which entailed steep cuts in crude production to deal with a sharp fall in the price of oil as a result of the Covid-19 pandemic.

What is the background?

• As a result of the Covid-19 pandemic the price of Brent crude hit an 18-year low in April 2020 as the economic activity around the world crashed
• OPEC+, maintained lower levels of production despite crude oil prices reaching pre-Covid levels.
• Saudi Arabia, announced a further cut in production of 1 million barrels per day for the February-to-April period, which helped boost rising prices even further.
• The OPEC+ group ran into sharp criticism from developing economies, including India, for deliberately maintaining low supply levels to raise prices.
• In April, OPEC+ agreed to gradually increase crude production as prices reached $64.5 per barrel including a phased end to Saudi Arabia’s 1 million barrel per day cut in production by July.

What is the issue?

• The UAE agreed that there was a need to increase crude oil production from August.
• But did not agree to a condition by the OPEC Joint Ministerial Monitoring Committee (JMMC) that the two-year production agreement be extended by six months.
• The UAE’s key objection is the reference output used to calculate the total production apportioned to each oil-exporting country.
• The UAE noted that the baseline reference production levels were unfair.

How will this impact India?

• If the UAE and other OPEC+ nations do not reach an agreement to increase production in August, expected relief in the form of lower crude oil prices could be delayed.
• India is currently facing record-high prices of petrol and diesel, which is impacting its economic growth.

About OPEC:

• The Organization of the Petroleum Exporting Countries is an intergovernmental organization of 13 countries.
• A larger group called OPEC+ was formed in late 2016 to have more control on the global crude oil market
• Mission: 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."
• The current OPEC members are: Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. Former OPEC members are Ecuador, Indonesia and Qatar.
• OPEC+ came into existence in late 2016 as a means for the top oil-exporting nations to exert control over the price of the precious commodity.
• OPEC+ is an amalgamation of OPEC and 10 other oil-exporting nations such as Russia and Kazakhstan.

https://indianexpress.com/article/explained/opecs-output-pact-proposal-how-will-decision-affect-india/

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