Oil Prices Rises As OPEC+ Deep Cuts

Context

Oil prices rose about 1%, as OPEC+ members agreed to its deepest cuts to output since the 2020 COVID pandemic, despite a tight market and opposition to cuts from the United States and others.

How Much Cut Has Been Proposed?

• The 2 million-barrel-per-day (bpd) cut from OPEC+ could spur a recovery in oil prices that have dropped to about $90 from $120 three months ago on fears of a global economic recession, rising U.S. interest rates and a stronger dollar. 
• U.S. West Texas Intermediate (WTI) crude rose $1.24, or 1.4%, to settle at $87.76 a barrel. 
• It reached $88.42 per barrel during the session, the highest since Sept. 15. 
• Both Brent and WTI rose sharply in the last two days.

What is OPEC+?

• The non-OPEC countries which export crude oil along with the 14 OPECs are termed as OPEC plus countries.
• OPEC Plus was created in 2016 when OPEC countries decided to ally with other oil-producing countries outside the group to cut down the global output of oil.
• OPEC plus countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan, and Sudan.
• Saudi and Russia, both have been at the heart of a three-year alliance of oil producers known as OPEC Plus — which now includes 11 OPEC members and 10 non-OPEC nations — that aims to shore up oil prices with production cuts.
• It accounts for an estimated 44 percent of global oil production and 81.5 percent of the world’s “proven” oil reserves.
• ??Objectives
• Coordinate and unify petroleum policies among Member Countries
• In order to secure fair and stable prices for petroleum producers
• The efficient, economic and regular supply of petroleum to consuming nations
• A fair return on capital to those investing in the industry

Concerns for India

• Rising prices: Even after importing cheap Russian oil, India has not seen any cut in fuel prices. Rising oil prices are posing fiscal challenges for India, where heavily-taxed retail fuel prices have touched record highs, threatening the demand-driven recovery.
• Threatened recovery: As one of the largest crude-consuming countries, India is concerned that such actions by producing countries have the potential to undermine consumption-led recovery.