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Current Affairs

OPEC’s output pact proposal

Date: 07 July 2021 Tags: World Economy

Issue

The talks held between OPEC+ countries have failed to give any result after UAE stopped a conditional supply agreement in addition to output pact.

 

Background

OPEC+ has been contemplating increasing production of crude oil as demand has increased. Certain countries are fearful of price fall.

 

Details

  • The OPEC+ group had made two year deal to reduce crude oil production in response to fall in prices, owing to decrease in demand.

  • The price had reached an 18 year low of less than $20 per barrel. Several exchanges had sold crude oil for negative rates.

  • The deal had envisioned an initial cut of 22 million barrels per day from the pre-pandemic levels. This was about 22 percent of a total output.

  • The price has since increased after vaccination process rolled out. Now the price stands at about $76 per barrel. The increase in demand was the reason for the rise in prices.

 

UAE’s concerns

  • UAE wanted the bloc to increase production from August, without specifying the exact numbers. It has also not agreed for extension of production limit deal.

  • UAE feels that the OPEC+ deal had put limits without considering its production capacity. The production levels suggested to it were unfair.

 

Effects on India

  • India was expecting that a suitable deal was reached between OPEC+ countries to increase daily production levels. Delay in reaching deal will further escalate the prices.

  • High crude prices have made petrol prices breach Rs 100 per litre mark in many states. It may further see inflation rate climb if prices don’t sober down.