New OPEC Deal is Expected to Ease the Global Fuel Prices
The member countries of OPEC (Organization for Petroleum Production Countries) and several other oil-rich countries like Russia finally agreed to boost the oil production by 400,000 tons per day starting from the next month. The dispute about quotas lasted almost two weeks and raise oil prices up to $73 primarily because the United Arab Emirates and Saudi Arabia disagreed with the earlier plans.
After the agreement, new hopes emerged. People believe the move will help to reduce the soaring prices at the pumps and stabilize fuel inflation. Experts explain the rising crude prices with an earlier cut of 5.8 million barrels per day, which is projected to last until September of 2022.
The deal is also a significant achievement for OPEC Plus as an organization because series of disputes among the members led to the questing of its legitimacy in solving oil-related issues. Now, the deal is confirmed, and it eased the fears of critics who speculated that OPEC Plus will collapse one day, leading to a free dive in oil prices. In this context, several leaders confirmed the effectiveness of the organization. For example, Prince Abdul Aziz bin Salman stated that “OPEC plus is here to stay”.
Why oil production increase was necessary?
The global economy stalled during 2020 due to the coronavirus pandemic. The global lockdowns contributed to the decrease in demand for gasoline and petrol products as fewer people were traveling. As a result, crude oil prices dropped significantly, even reaching below $0 a barrel on April 20, 2020. To remedy the falling oil prices, OPEC plus members introduced 5.8 million barrels a day oil production cuts. And collectively oil cuts accounted for a record 10 million barrels per day in 2020. Although some of that cuts were reinstated gradually, there was still a gap between the demand and oil production.
The global economy now started to revive from the pandemic lockdowns and the demand for oil increased, rising prices at gas stations, and creating a shortage in crude oil. Now, OPEC plus’s new agreement can reverse the impact of earlier cuts and ensure an adequate supply of oil for the global economy. According to Robin Mills, CEO of Qamar Energy, the deal will be “good for the consumers in short term”. Yet, some experts are still skeptical that the deal will be capable of removing pressure off the oil prices.
New OPEC plus deal may stabilize inflation
In the recent meeting, International Energy Agency (IEA) voiced their concern over the growing supply deficit in the oil market and rising global fuel prices as those things can influence economies that are already crippled by the pandemic. Although rising prices may be profitable for oil-producing countries, the consumer side suffers a greater disadvantage from inflation caused by high oil prices. Increasing fuel prices can lead to high transportation costs, which in turn, adds extra prices on the products that we get from the store.
Currently, UK’s inflation rate is close to 2.5 percent, which is the highest in three years. For example, motor fuels in the UK increased about 20%, which is measured to be the highest annual increase in more than a decade. Now, hopes on OPEC new deal which expected to alleviate some of the oil-related inflations.