OPEC and Russia approve biggest Oil Cuts

The Organization of Petroleum Exporting Countries (OPEC) and Russia have come together to cut oil output by 10%. This is being done to control the falling oil prices amidst lock down all over the world due to COVID-19.

Background

The Russian Government earlier refuted to sign the deal when Saudi Arabia initiated production cuts. Russian petroleum exports were badly hit due to the CAATSA imposed by Russia. Hence, Russian market began to turn in towards the its own country markets. Russia in fact began to increase its production since then. Russia had planned to boost its production to 500,000 bpd to fulfil its own energy demands and also to suffice its export destinations.

The OPEC asked Russia to cut its production by 300,000 barrels per day. This will hit Russian economy badly.

Takeaways of India

The big consumer countries such as India, China, Japan and South Korea backed the deal to boost their reserves.  This is because, the current deal on which OPEC members are supplying oil had come to an end by March 30, 2020. Though the new deal has made the biggest cuts, it will not cause major changes to price changes as the demand is unpredictably low.

India’s petroleum reserves have now reached 60% of its holding capacity. This is the right time for the importing countries like India to fill in their reserves.

Role of US

The deal was brokered by the US President and also by G20. The United States had a major role as it intended to protect its energy sector. The US shale sector was battered badly due to decline in oil prices.

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