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Teji Mandi Explains: OPEC’s rigidity could hike crude oil prices

04:35 PM Dec 06, 2021 | Teji Mandi

Let’s get some facts and figures straight. OPEC produces about 40% of the world’s oil supply. The Organization of Petroleum Exporting Countries (OPEC) represents 13 major oil-producing nations, which places it as a dominating cartel. Now the oil cartel has stopped opening its taps and restricted oil output. It said it will steadily increase oil output. This is devastating for half of the world including India, as fuel prices will continue to climb if they don’t hike oil output. Let’s read more!

What Happened?

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OPEC had strictly announced that it would stick to raising production by 4,00,000 barrels a day in November. This is less than 0.5% of the world demand. However, the cartel did not explain any reasoning behind the oil output. It just said that it was ‘acting in view of the current oil market fundamentals’. Now, the US, China, Japan, the UK and some other nations including India have agreed to release some emergency stockpiles of crude. These stockpiles are meant for desperate situations, like wars or natural calamities.

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In the case of the US, out of 700 million barrels of the reserve, they are releasing 50 million barrels. Meanwhile, India is contributing about 5 million barrels from its reserves. But the question is - how long will we exhaust our reserves?

Why Should It Bother You?

The reserves released by the US, India and other nations won’t affect the fuel prices. The reason behind this is that India’s 5 million barrels are consumed in one full day. If we compare this situation with the US, it’s the same. In a way, OPEC continues to remain the cartel because all they have to do is wait.

Once other countries use up their reserves, they will have to refill it and go back to OPEC again to purchase. So, it’s a win-win situation for OPEC.

What Will Happen Ahead?

The stern decision of OPEC and especially of the oil kingpin Saudi Arabia seems to be unmoving. They have decided to wait and adopt a bolder approach. Due to supply setbacks, it’s very much possible that the crude oil price could jump to $90 or above by the end of the year. If the crude oil price jumps further, OPEC will then have to come at odds with several countries as everyone would stand against the oil cartel, especially the US. If these two countries battle over crude supply, then things could take a wrong turn.

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