About: OPEC , OPEC+

About: OPEC

  • The Organization of the Petroleum Exporting Countries is an intergovernmental organization of 13 nations (as of February 2021), founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), and headquartered since 1965 in Vienna, Austria.
  • The current OPEC members are Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia (the de facto leader), the United Arab Emirates and Venezuela. Ecuador, Indonesia and Qatar are former members.
  • Its mission is to ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.
  • The organization is also a significant provider of information about the international oil market.
  • The formation of OPEC marked a turning point toward national sovereignty over natural resources, and OPEC decisions have come to play a prominent role in the global oil market and international relations.

About: OPEC+

  • OPEC+ is an agreement between OPEC and 10 Non-OPEC nations (notable among them Russia, Mexico and Kazakhstan) in order to protect oil prices from a global slowdown.
  • OPEC’s 13 members control 35 percent of global oil supplies and 82 percent of proven reserves. With the addition of the 10 Non-OPEC nations, those shares had increased to 55 percent and 90 percent respectively.
  • The agreement signed in January 2017 in Vienna, called for the members of the deal to cut production by 1.8 million barrels/day of crude oil from global supplies from the beginning of 2017.
  • The principle aim was to help ease the oversupply situation back then and importantly reduce the huge stocks that had been delaying the much-needed rebalancing of the oil market.

Background: OPEC+ pact to cut oil production to boost prices

  • An agreement signed in January 2017 in Vienna called for the OPEC+ members of the deal to cut production by 1.8 million barrels/day of crude oil from global supplies from the beginning of 2017.
  • It lasted till March 2020, when they couldn’t find an agreement for production cuts to raise oil prices amidst low oil demand during the pandemic.
  • In April 2020, OPEC+ along with another major oil producer United States agreed on a deal to curb global oil supply by 20 per cent, to give an upward push to oil prices as the demand for oil plummeted due to Covid crisis.
  • OPEC+ had agreed to cut output by almost 10 million barrels per day (bpd) from May 2020, with plans to phase out the curbs by the end of April 2022.
  • This has led to consistently high oil prices, now at 2-1/2 year highs at around $75 a barrel.

News Summary:

  • At the beginning of July 2021, production cuts from OPEC+ stand at 5.8 million bpd.
  • Consequently, oil prices now trading around $75 a barrel, more than 40% up this year.
  • The rise in oil prices is contributing to global inflation, slowing the economic recovery from the novel coronavirus crisis.
  • Consumers want more crude to aid a global recovery from the COVID-19 pandemic.
  • In this context, OPEC+ led by Russia is seeking consensus on raising oil output by 2 million barrels per day (bpd) by the end of 2021, that might help the crude oil prices cool down.
    • Russia is looking to release more oil to the market, as the rise in prices was encouraging the growth of rival U.S. shale output.
    • The shale oil needs higher prices to be economic, and when global prices are high, it can compete with conventional oil.

 International Relations