Changing trends?: on the global petroleum market

Mains Paper 3: International Relations
Prelims level: Brent crude
Mains level: Bilateral, regional and global groupings and agreements involving India and/or affecting India's interests Effect of policies and politics of developed and developing countries on India's interests

Context

•  Saudi Arabia signalled its discomfort with the falling prices and hinted at a fresh cut of one million barrels a day.
•  The benchmark Brent crude, which slipped below the $70 a barrel mark last Friday, reacted sharply on Monday, rising to above $72.
•  That prompted a tweet from U.S. President Donald Trump asking for lower prices, and so, on Tuesday prices again fell to below $69!
•  The price of Brent crude, which had risen over the $85 mark in early October, is down by about 20% from its October peak.
•  Saudi Arabia’s latest call to cut output comes just months after the OPEC cartel decided to increase its output.
  Decisions has been taken by OPEC members
•  OPEC members decided to ramp up supply after apprehensions over Iranian supplies in the wake of economic sanctions imposed by the U.S. Since then.
•  The U.S. has granted a temporary waiver to eight countries, including major buyers India and China, to continue importing oil from Iran for at least the next six months.
•  The way prices have responded to OPEC’s output decision, however, suggests that it may still be too early to dream about higher prices in the near future.
•  A crucial meeting between the cartel and its allies in the first week of December will decide the 2019 output level. That might well set the trend for oil prices in the new year.

Way forward

•  This price action suggests that markets could probably still be worried about the risks of any kind of sustained rise in oil prices.
•  For one, strong U.S. opposition to higher oil prices could be making investors feel jittery.
•  Mr. Trump’s tweet on Monday, for instance, negated the bullish influence of OPEC’s announcement almost immediately.
•  The increasing output of shale is another significant threat to oil prices.
•  The U.S. Energy Information Administration last week predicted that American crude output would increase at a higher pace than expected and lead to lower prices next year.
•  This is not at all surprising because U.S. shale producers have traditionally increased their output in response to higher oil prices.
•  Also, producers like Russia have been non-committal on any significant production cut.
•  Any slowdown in global economic growth is another risk factor that may weigh down oil.

Online Coaching for UPSC PRE Exam

General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q1. The term 'Asian premium' refers to
(a) a world famous rice variety found in Asia.
(b) a type of insurance contract leading to slowdown in Asian financial markets.
(c) Asian countries being charged high oil prices by Gulf suppliers.
(d) highly educated skilled workers from Asia.

Answer: C

Mains Questions:
Q1. A meeting of OPEC and its allies in December will decide the future course of oil prices. In this context how the meeting will impacted on India to control oil price.