OPEC extends oil production cuts to boost price
After long deliberations in Vienna, Austria, the OPEC announced that it will restrict the supply of oil for another nine months in a bid to support prices. The oil prices are being depressed by weakening global economic growth and skyrocketing American oil production from shales. The agreement to cut oil production will extend it to the end of March 2020. The production cuts were first implemented in 2017.
While critics of the OPEC called this move contrary to the existing principles of the free market conditions, OPEC blamed the extension of the cuts to the “economic bearishness that is now increasingly prevalent” because of trade tensions, central bank policies and “geopolitical issues.”
In the same meeting, the OPEC members also agreed in principle to formalize the charter with other major oil producers who are non-OPEC members including Russia. Iran objected to the principle as it wanted the agreement to be ratified by national governments. Saudi Arabia, the biggest oil producer within OPEC, and Russia, the cartel’s most powerful ally, also discussed extending supply curbs that were first introduced after global oil prices crashed in 2015.
What is OPEC?
The Organization of the Petroleum Exporting Countries is an intergovernmental cartel of 14 nations. It was founded originally in 1960 in Baghdad by the first five members -Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. It has since then expanded to include other countries and is now headquartered in Vienna, Austria since 1965.
The current OPEC members are Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia (the de facto leader), United Arab Emirates, and Venezuela.
Earlier, Qatar and Indonesia were also part of the OPEC (not now).
What is happening now?
US sanctions on Iran helped drive prices sharply higher in the first four months of this year.
Iran’s oil exports have reduced significantly since the expiry in May of waivers.
This has allowed some of its biggest customers, such as India, to continue Iranian oil buying without fear of US legal action.
The United States has also overtaken Saudi Arabia and Russia to become the world’s biggest oil producer. This has Its imports from OPEC plunged to their lowest level in three decades earlier this year.