Ahead of the crucial meeting of the Organisation of the Petroleum Exporting Countries (OPEC) on November 30 in Vienna, Iranian Oil Minister Bijan Zanganeh speculated last Friday that crude prices could jump to $55 a barrel if an agreement is reached and non-OPEC producers cooperate. “The Organisation of the Petroleum Exporting Countries is moving closer towards finalising its first deal since 2008 to limit oil output, with most members prepared to offer Iran significant flexibility on production volumes,” according to Reuters. On the day of Zanganeh’s comments, benchmark Brent crude rose by 37 cents to $46.86 per barrel. On Monday, Brent crude oil briefly touched $49 a barrel. Presenting some context is imperative. In a bid to allay fears of global oversupply, the OPEC has agreed to cut oil production after 14 major oil exporting member nations came to an agreement in September. The world's largest energy cartel has decided that output should be reduced to a range of 32.5-33.0 million barrels per day—a drop of almost 700,000 barrels per day. Among the finer nuances that are yet to thrashed out, member nations will decide on how much each country would produce at the next OPEC meeting on November 30, where invitation for joint cuts will also be extended to non-OPEC oil producers like Russia. Oil prices received a further boost when Russian President Vladimir Putin expressed similar expectations that many in the market share of an imminent deal on Sunday at a news conference in Lima after an Asia-Pacific Economic Cooperation summit. Putin said he sees a “high probability” that an agreement to curb oil production will be reached in Vienna. “We will do everything that our partners from OPEC are expecting. To freeze crude production is not an issue for us,” Putin said. Although Russia is not an OPEC member, it is among the world’s biggest oil producers.
As per the deal, Iran, Nigeria, and Libya would be allowed to increase production. Before this deal, OPEC nations had been producing at record levels, as members sought to firm their grip on the market, following the entry of US-produced shale oil. However, the oversupply resulted in a massive fall in oil prices from $110 per barrel to $40 barrel this year. Experts contend that oil prices are well below the budget requirement of most OPEC nations. Earlier attempts to cut production failed because of disagreements between Iran and Saudi Arabia. In the past, Riyadh had said that it would reduce output to ease a global glut only if other member nations committed to the same. Although both countries heavily depend on oil, Iran has suffered a lot less from the drastic fall in prices since it was denied access to the global market by Western-backed sanctions before the historic Iran-US nuclear deal. But rising unemployment and slow economic recovery have forced Iran to seek maximisation of oil revenues. Riyadh’s decision to change track comes amidst reports of a stagnating domestic economy. Economic compulsions have come in the way of political hostilities between the two nations, which are fighting several proxy wars in the Middle East—Syria and Yemen.
What are the implications of the OPEC deal for India? As the fourth largest importer of crude oil, India imports 85 per cent of total oil and 95 per cent of natural gas from OPEC nations. The drop in India's inflation levels has been largely down to the huge slump in crude oil prices. As a major importer, India has been a key beneficiary. At present, India incurs a massive Rs. 4.5 lakh crore on crude imports. Although experts contend that oil prices will not return to the highs of $100 per barrel, the Centre cannot function under the presumption that prices will remain low in the long-term. However, one must exercise caution and not assume that the output deal is done. Previous attempts by the OPEC to force a rise in prices did not yield much success due to the production of American shale oil. One never knows with the OPEC—finer details of such deals are often thrashed out till the very last minute. Nonetheless, the potential for a production freeze, which could jack up prices, remains a serious possibility.