The much anticipated OPEC meeting, which is currently underway at Vienna (Austria) has been at the centre of attention around the globe for many days. Brent and WTI which have averaged the price of $72.80 and $66.10 per barrel so far this year, are currently trading at $59.41 and $51.13 respectively, at the time of writing. This has raised concerns around the world over an emerging slowdown in crude oil prices and a global glut.
The OPEC meeting has generated a lot of anticipation around the probable production cut. The Organisation of the Petroleum Exporting Countries (OPEC) has hinted a few times regarding the possible cuts, however, it isn’t a matter of ‘will OPEC pass a resolution for output cut’ but rather ‘what would be the number at which the general consensus will occur for possible production cut’.
The prime reason why it is much difficult for the OPEC Bloc, especially for Saudi Arabia (who is the largest producer in the bloc) to pass the resolution for a production cut is the United States, and particularly its President Donald J Trump. Trump has been a very vocal supporter of lower crude prices. Just yesterday, prior to the OPEC meeting, Trump tweeted, “Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!”
This hasn’t been the first time Trump has put his views on oil prices forward, as earlier in the previous month, Trump praised Saudi Arabia over lower oil prices and called for prices to go even lower. Trump tweeted, “Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy!… Thank you to Saudi Arabia, but let’s go lower!”
Although there are multiple factors that can be assigned to the decline in the oil prices in the recent month, no one can deny the fact that Saudi Arabia played a major role in it. Saudi Arabia in the month of November increased its oil production from 10.67 Million BPD (barrel per day) to 11.02 Million BPD. Saudi Arabia who is the biggest oil producer in the world was also posted the largest increase in production among other OPEC members.
Except for Kuwait and UAE, all other OPEC member either reduced or stabilized their crude oil production. Thus it has put a lot of strain among the OPEC member to reach a general consensus for a possible cut in oil production as any cut will put a lot of pressure on their domestic economies. All other OPEC members are pushing against Saudi Arabia, Kuwait and UAE to cut the oil production from their own territories.
However, the OPEC meeting has already been foreshadowed by unfavorable signs as Qatar, who has been the member of the Bloc for past 6 decades, has announced its departure from the Bloc. Though Qatar only accounts for 2% of the total oil production of OPEC, it isn’t a good sign for the bloc as it will raise a lot of questions regarding the continuity of the Bloc itself.
What is it for India: India’s is highly dependent on the OPEC to fulfil their fuel demand, as India source more than 80% of the crude oil and 98% of its LPG from the bloc. Thus any decision made by the OPEC highly impacts the macroeconomics of the country. If OPEC decides to cut its production to a sufficient level in order to raise global crude oil prices, it will adversely affect the country’s economy.