OPEC meeting has been scheduled for November last week in Austria.
What is OPEC?
Organisation of Petroleum Exporting Countries is acartel of oil exporting nations, which accounts for more than 40 per cent of the world’s oil supply.
As of now OPEC has 14 members, Saudi Arabia, Iran, Iraq and Kuwait, Venezuela are the founding members of the group.
OPEC aims to coordinate and unify the petroleum policies of its member countries to stabilise oil markets.
Member countries together increase or decrease oil production to try to achieve desired supply levels and prices, based on a unanimous vote.
As a ‘swing producer’, OPEC could turn on and turn off the stoppers to control global oil production and prices.
What are the Challenges OPEC is facing from non-members?
Technological advancements horizontal drilling and fracturing enabled shale oil exploration and production on an industrial scale in the US.
US output since last year has increased by nearly a million barrels a day to a daily nine million barrels.
That already puts American producers in the league with oil giants Saudi Arabia and Russia (non- member) and cuts further into OPEC’s past ability to play a role in setting prices and supplies.
This upended the dynamics of the oil industry and precipitated the collapse of oil trade since mid-2014.
Mega producers such as Russia that are also not part of OPEC, too now command significant influence in the oil market.
What is the need for upcoming meet?
During mid 2014 to contain oil trade collapse OPEC nations introduced price cuts in production, as a result crude oil prices dropped.
The cuts helped halt oil’s collapse and aided its 40 per share resulting $64 a barrel now.
At the same time US shale producers assumed on and it eventually teamed with major non-OPEC producers such as Russia to cut about 2 per cent of global production.
This strategy seems to have helped, the price collapse halted giving way to the meeting this year.
This OPEC meeting is expected to approve extension the production cost cuts until December 2018 with Russia (non- member) also on board to boost production.
The meeting is crucial as OPEC will decide whether to continue with output cuts or not.
What are the implications for India?
India imports more than 80 per cent of its oil requirement.
If OPEC gets aggressive on it output cut programme, it could mean trouble for India.
As oil prices halving since 2014 has been a fiscal boon for the government and oil companies.
Higher oil prices will invariably mean costlier petrol and diesel and higher inflation in India.
Even if price rises India has no big burned as US shale oil would come back to the market resulting in a cap on prices.
