In an effort to support the concerns over global growth and rising petroleum output from countries, the OPEC+ on Sunday accumulatively agreed to extent the voluntary cuts of 2.3 Million bpd. There has been an increase in the output from the non OPEC countries and the need to balance the costs has arisen. The question here is not about the statistics of the voluntary oil cuts proposed by the OPEC+ in the second quarter. It is about the very impact that this will make on the economy of the oil importing countries across the world. E.g, India is currently importing record amount of crude petroleum from Saudi Arabia that accounts to more than 4.4 million barrels per day. The crude oil exports from Saudi Arabian to India rose by 28 per cent year-on-year (y-o-y) and 21 per cent month-on-month (m-o-m) last month according to a consultancy firm Vortexa.
“Saudi crude’s heavy official selling price (OSP) discounts is likely a strong reason for driving India’s imports of Saudi crude in February”, mentioned Vortexa’s Head of APAC Analysis, Serena Huang to the media.
It has been said that the petroleum production in the non-partner OPEC countries are increasing like the US and that is why the decision for voluntary oil cuts has been taken. But, there have been other factors like rising CO2 emissions, oil spills from refineries and most importantly, rising acceptance of green energy that has also impacted consumer understanding greatly and has lowered dependence on petroleum based fuels. So, as a result of this decision by OPEC+, there can be global impacts of varied sizes.
As of today, petrol price in India is 106 rupees/litre and diesel is 94 rupees/litre. This is one of the highest recorded prices for fuels in India. Currently, the country imports more than 4.4 million bpd from Saudi Arabia which has announced voluntary oil cut of 2.2 million bpd in the second quarter of 2024. It has been announced despite the prices being under balance until now this year globally. Here, it is very important to understand that this decision might hugely impact oil prices directly in India and prices can go higher in the coming months.
High usage of petroleum based fuels in India had earlier resulted in extreme pollution levels in the busy cities of the country. This has resulted in opting for substitute fuels like CNG and EV that have also grown a significant market share in the country. However, the logistics sector is still completely dependent on petroleum based fuels and that is applicable worldwide. Maybe, this decision will marginally impact the consumer automotive sector but will have an impact on logistics especially in the countries like India that are completely dependent on crude oil imports.
According to a report presented by the International Energy Agency (IEA), CO2 emissions reached a record high globally in 2023. Usage of fossil fuels is one of the primary reasons for CO2 emissions across the globe that has forced the business ecosystem to search for alternative source of energies like solar, wind, tidal and others. This decision by OPEC+ could have been taken in the wake of this realization as well. The IEA has also said it its report that there has been an acceptance in green energy technologies over the last few years.
To OPEC and OPEC+, the rise in renewable energy sources is nothing more than rise of competition in the market and by cutting down supplies, the idea might be to increase costs in the coming months. If Saudi Arabia will be cutting down deliveries of 2.2 million BPD that will directly impact the imports for countries like India who would have to compensate that need from elsewhere. The actions might include growth in the renewable energy sector and creating an infrastructure around it.
According to the data by US Energy Information Administration (EIA), oil imports from Iraq to US rose by 30.5 percent in 2023. This has resulted in higher reserving capacities for OPEC independent countries such as US who will now be able to cater to the global needs. Many businesses have reported increased productivity of petroleum products and in order to drive their market, this decision has been taken by OPEC+.
There are other impacts because of this decision globally that could affect economies and also become detrimental to environmental sustainability. To give an example, Shell oil refineries in Nigeria had been experiencing oil spills due to negligence in maintenance. This has resulted in oil spilling over agricultural lands and making them infertile. It has also affected water bodies and eliminated all opportunities for fisheries to grow.
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