OPEC+ DEAL ON OIL CUTS

Disclaimer: Copyright infringement not intended.

Context

• OPEC+ (Organization of the Petroleum Exporting Countries and allies led by Russia) meeting to discuss output policy and potential production cuts.

Details

OPEC+ Deal and Output Policy:

• OPEC+ (Organization of the Petroleum Exporting Countries and allies led by Russia) reached a deal on output policy after lengthy talks.
• The group is likely to maintain the existing output agreement for 2023 and consider additional cuts in 2024, depending on agreed production baselines.

Saudi Arabia's Voluntary Cuts:

• Saudi Arabia, a key member of OPEC+, will pledge new voluntary production cuts.
• The exact timing and extent of Saudi's cuts, as well as the overall cuts by OPEC+, are yet to be determined.

Impact of OPEC+ Decisions:

• OPEC+ collectively produces around 40% of the world's crude oil, making their policy decisions influential in global oil prices.
• Additional production cuts, if approved, could amount to 1 million barrels per day on top of existing cuts, totaling 4.66 million bpd.

Oil Price Volatility:

• The April announcement of voluntary cuts led to a temporary price increase, but concerns about global economic growth and demand caused prices to decline.
• The international benchmark Brent settled at $76, reflecting the impact of market pressures.

Saudi Arabia's Warning:

• Saudi Arabia's Energy Minister warned investors who were shorting oil prices to "watch out," suggesting the possibility of additional supply cuts.
• This statement was interpreted as a signal of potential further actions by OPEC+ to support oil prices.

Western Accusations and OPEC's Perspective:

• Western nations have accused OPEC of manipulating oil prices and undermining the global economy.
• OPEC insiders argue that Western money-printing has driven inflation, necessitating actions to protect the value of oil exports.

African Nations and Output Targets:

• Influential OPEC members, led by Saudi Arabia, aimed to persuade under-producing African nations like Nigeria and Angola to set realistic output targets.
• Nigeria and Angola have struggled to meet their targets but oppose lower baselines as it could require actual production cuts.

UAE's Production Capacity and Baseline Demands:

• The United Arab Emirates (UAE) seeks a higher baseline in line with its growing production capacity.
• However, this could result in a decrease in its share of overall production cuts within OPEC+.

Media Access Restrictions:

• OPEC denied media access to its headquarters for Reuters and other news media outlets.

About OPEC

• OPEC (Organization of the Petroleum Exporting Countries) is an international organization that collaborates on oil production and pricing policies.
• OPEC was founded in 1960 in Baghdad,
• The organization's headquarters is located in Vienna, Austria.

Members:

OPEC consists of 13 member countries

• Algeria
• Angola
• Equatorial Guinea
• Gabon
• Iran
• Iraq
• Kuwait
• Libya
• Nigeria
• Republic of the Congo
• Saudi Arabia
• United Arab Emirates
• Venezuela

Objective:

• OPEC's primary objective is to coordinate and unify petroleum policies among its member countries to secure fair and stable oil prices, ensuring a steady income for oil-producing nations and a reliable supply for consumers.

Decision-Making:

• OPEC operates on a principle of consensus among its member countries.
• Major decisions, such as production quotas and pricing policies, are reached through negotiations and consensus among the member nations.

Production Quotas:

• OPEC establishes production quotas for its member countries to control global oil supply and stabilize prices.
• These quotas are determined based on each member's production capacity and market share.

Influence and Impact:

• OPEC has historically been a significant player in the global oil market, with its member countries accounting for a significant share of global oil production and reserves.

About OPEC+

• OPEC+ refers to a coalition between the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC oil-producing countries, most notably Russia.
• OPEC+ was formed in 2016 as a response to the global oversupply of oil and the resulting low oil prices.
• OPEC recognized the need to collaborate with non-OPEC countries to effectively manage oil production levels and stabilize the market.

Members:

OPEC+ is an expanded version of OPEC and includes additional non-OPEC countries, most notably Russia.

Non-OPEC Members:

• Azerbaijan
• Bahrain
• Brunei
• Kazakhstan
• Malaysia
• Mexico
• Oman
• Russia
• South Sudan
• Sudan

Objectives:

• The primary objective of OPEC+ is to collectively manage oil production levels in order to balance supply and demand and stabilize oil prices.
• By coordinating production cuts or increases, OPEC+ aims to prevent significant price fluctuations and maintain a more stable market environment.

Production Agreements:

• OPEC+ agreements involve setting production quotas for each participating country.
• These quotas specify the amount of oil that each country is allowed to produce.
• The goal is to collectively reduce or increase oil production to align with market conditions and maintain price stability.

Meetings and Decision-Making:

• OPEC+ holds regular meetings, typically every six months or as needed, to discuss and decide on production levels and policies.
• During these meetings, representatives from OPEC and non-OPEC countries negotiate and reach consensus on production adjustments.
• The decisions are based on various factors, including market analysis, supply-demand dynamics, and geopolitical considerations.

Impact on Oil Prices:

• OPEC+ decisions have a significant impact on global oil prices due to the coalition's collective production capacity.
• When OPEC+ countries agree to cut production, it reduces the global supply of oil and often leads to higher prices.
• Conversely, when production cuts are eased or increased, it can put downward pressure on oil prices.

Market Challenges:

• OPEC+ faces challenges in maintaining cohesion among its diverse membership, as countries may have different economic and geopolitical interests.
• The coalition must strike a balance between the needs of oil-producing countries and the stability of the global oil market.

PRACTICE QUESTION Q)Which of the following is NOT a goal of OPEC+? (A) To stabilize the oil market (B) To ensure that oil prices are fair to both producers and consumers (C) To promote the long-term interests of the oil industry (D) To increase oil production Answer: D

 

https://www.deccanherald.com/business/business-news/saudi-plans-new-oil-cuts-as-part-of-opec-deal-1224831.html