Soaring Crude Oil Prices: Why OPEC Doesn’t Pour Oil On Troubled Waters
The Organization of the Petroleum Exporting Countries (OPEC) is a group of 13 Middle Eastern and African countries namely Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. OPEC was formed in 1960 as a cartel to regulate the global oil supply and its prices.
In 2016, as the global oil prices plummeted alarmingly, OPEC joined hands with 10 more oil-producing countries which were not members of the group yet and formed OPEC+.
Among these countries is also Russia, which alone produces 10 million barrels of crude oil every day. Put together, these OPEC+ countries produce 40% of the global crude oil.
These OPEC+ nations tailor the supply and demand of oil to balance the market. Every month, the OPEC+ members meet in Vienna, Austria to determine the quantity of crude oil that needs to be put out in the global market. Whenever demand for oil is low, these nations reduce the supply of oil to keep the prices high.
All the major oil-exporting countries are meeting on 5th May as global pressure to bring down the soaring oil prices escalates. Major oil importers, USA and UK want the OPEC+ countries to increase their oil production to bring down the soaring high crude oil prices.
Here are a few recent instances when the OPEC+ countries played a part in controlling the global oil prices:
- In 2020, amidst the COVID crisis, oil prices fell steeply given the lack of demand due to the worldwide lockdowns. This led to the OPEC+ countries slashing down their oil production by 10 million barrels a day, to bring up the oil prices.
- In June 2021, when the demand for oil picked up pace, the cartel decided to put out more than 400,000 barrels of oil into the global market.
- In light of the Russia-Ukraine crisis, crude oil prices soared to $100 a barrel which caused the prices of petrol to jump high. On top of this, the sanctions imposed by the EU countries on Russia have led to a very tight squeeze on the oil supply.
While some experts believe that Saudi Arabia and UAE are deliberately keeping the oil production low to maintain the jacked-up prices, this could also be connected to the pandemic which hindered the oil installations, as a result of which they are not in a functional state.
It is evident that the OPEC+ nations wish to maintain healthy relations with Russia as it is one of the biggest oil exporters in the cartel. The CEO of Crystol Energy, the Russian oil giant, has stated that it is happy with the oil prices at this level and has nothing to gain by bringing down the oil prices.
This spells bad news for all the countries whose oil supply is down, including India, as the supply of crude oil will progress at a snail’s pace from now till September this year.