OPEC+ agreement

OPEC+ agreement

Subject: International Relations

Context:  OPEC (Organisation of Petroleum Exporting Countries) and its allies led by Russia have agreed to gradually withdraw Covid-related production cuts by September 2022, leading to crude oil prices falling to about $72 per barrel on Monday.

Concept:

• The OPEC+ group of countries had in April 2020, entered into a two-year agreement which entailed steep cuts in crude oil production to deal with a sharp fall in the price of crude oil as a result of the Covid-19 pandemic.
• Crude oil prices have, recovered to well above the pre-Covid-19 levels leading to India and other developing countries calling for a withdrawal of production cuts.

Standoff between UAE and other OPEC+ countries

• The initial proposal by OPEC+ countries had tied the gradual increase in production to a six-month extension of the production agreement which was set to expire in April 2022.
• The UAE did not agree to the proposal stating that the reference production levels used to calculate supply quotas for OPEC+ countries did not represent the actual supply capacity of the UAE and that an increase in supply should not be tied to the proposed extension without a revision in reference production levels.
• The final decision by OPEC+ on withdrawal of production cuts does include an extension of the production agreement to September 2022 but also provides for increases in reference production levels for Saudi Arabia, Russia, UAE, Kuwait and Iraq.

OPEC+

• OPEC+ is the alliance of crude producers undertaking corrections in supply in the oil markets since 2017.
• OPEC plus countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan. (OPEC, As of 2020, OPEC has a total of 13 Member Countries viz. Iran, Iraq, Kuwait, United Arab Emirates (UAE), Saudi Arabia, Algeria, Libya, Nigeria, Gabon, Equatorial Guinea, Republic of Congo, Angola and Venezuela are members of OPEC.)