Shale Gas Current Affairs - 2020

OPEC and Russia approve biggest Oil Cuts

The Organization of Petroleum Exporting Countries (OPEC) and Russia have come together to cut oil output by 10%. This is being done to control the falling oil prices amidst lock down all over the world due to COVID-19.

Background

The Russian Government earlier refuted to sign the deal when Saudi Arabia initiated production cuts. Russian petroleum exports were badly hit due to the CAATSA imposed by Russia. Hence, Russian market began to turn in towards the its own country markets. Russia in fact began to increase its production since then. Russia had planned to boost its production to 500,000 bpd to fulfil its own energy demands and also to suffice its export destinations.

The OPEC asked Russia to cut its production by 300,000 barrels per day. This will hit Russian economy badly.

Takeaways of India

The big consumer countries such as India, China, Japan and South Korea backed the deal to boost their reserves.  This is because, the current deal on which OPEC members are supplying oil had come to an end by March 30, 2020. Though the new deal has made the biggest cuts, it will not cause major changes to price changes as the demand is unpredictably low.

India’s petroleum reserves have now reached 60% of its holding capacity. This is the right time for the importing countries like India to fill in their reserves.

Role of US

The deal was brokered by the US President and also by G20. The United States had a major role as it intended to protect its energy sector. The US shale sector was battered badly due to decline in oil prices.

Oil Prices plunge by 20% as OPEC fails to make a deal

On March 9, 2020, the prices of crude oil plunged by 20% after OPEC to failed to make a deal in making production cuts.

Highlights

The Saudi Arabia and its major allies like Kuwait, Iraq and UAE initiated to make a deal at the OPEC to reduce production of oil. This was proposed predicting reduction in oil prices due to spread of Corona Virus in the world. However, Russia the major member of OPEC refused to make the deal.

Why did Russia refuse?

With US imposing CAATSA (Countering America’s Adversaries Through Sanctions Act), several countries reduced or even stopped importing oil from Russia. This has now made Russia the fourth largest International Reserves in the world. Also, Russia is also in the state that it shall cope with lower prices.

Way Forward

The oil prices are expected to plunge further in the future. The Saudi has taken up new strategy targeting Russia and US shale oil firms. These firms will lose money greatly when oil prices fall below 50 USD per barrel for more than few months.