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OPEC cuts supply causing oil prices to rise

OPEC cuts supply causing oil prices to rise

Oil prices recorded growth in price due to declining crude inventories. This was a result of OPEC (Organization of the Petroleum Exporting Countries) continuing with their supply cuts. The move caused most oil futures to rise in price. US inventories have taken a hit . Due to this, their supply dropping by 4.2 million barrels to 443 million barrels, according to estimates.

The official data from the US Energy Information Administration is still to be released. OPEC has been supported by other nations as well(OPEC+) so as to cause inflation in prices. The output is said to be reduced by 1.2 million barrels. Pressure from oil importing countries has been on a constant rise. But the OPEC nations have been steadfast on their decision.

This rise has been artificially constructed by oil exporting nations and is not due to any other reason like excessive demand. Oil prices had registered a massive slump in prices in recent years falling as low as $52.32 per barrel in 2015.

WHAT CAUSED OIL PRICES TO RISE?

A very major reason as to why oil prices have risen in recent times is the extraction of crude oil through shale reserves. The US has become a pioneer in this method which has resulted in it becoming the largest oil producer in the world, ahead of countries like Saudi Arabia, Iran and Russia. This expansion in the amount of oil being produced had caused oil prices to take a hit. As a corrective measure, the OPEC countries had decided to cut down on production. This affected US because shale oil production is relatively more expensive than traditional oil. Therefore, US oil production also came down.

HOW DOES INDIA GET AFFECTED?

India fiscal and current account deficits show a negative impact whenever there is a rise in crude oil prices. This results in an expansion in inflation and discrepancies in monetary policy, consumption and investment behavior. Indian customers usually bear the load of the increased oil prices, the effects of which show in various other sectors, primarily agriculture.

US President Donald Trump has been mounting pressure on OPEC countries to increase production. But no country has given in to those demands yet. He even tweeted on this issue urging the nations to ramp up production. The agreement amongst the OPEC nations to mutually cut down on production is estimated to continue until their inventories drop down to their 5-year average. Despite pressure from the US government, the cartel has decided to continue with its agreement until the prices reach their desired level. The way things are going the near future carries no respite for the average consumer.

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