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Last Updated : Jun 22, 2018 07:01 PM IST | Source: Moneycontrol.com

OPEC meeting in Vienna kickstarts today: Here's what you can expect

The biannual meeting of Organisation of Petroleum Exporting Countries (OPEC) in Vienna kickstarts on June 22 to decide a roadmap for their production output

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The biannual meeting of Organisation of Petroleum Exporting Countries (OPEC) in Vienna kickstarts on June 22 to decide a roadmap for their production output.

In the two-day meet, India will pitch for 'responsible' crude pricing by oil producers' cartel OPEC, Union Minister Dharmendra Pradhan had said as petrol and diesel prices skyrocketed in the country.

OPEC is an intergovernmental organisation with an objective “to coordinate and unify the petroleum policies of its member countries and ensure stabilization of oil markets." The body aims to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.

Here's what we know so far — 

> Amid strong demand, the market has since tightened significantly, pushing up crude prices and triggering calls by consumers to increase supplies.

> Saudi Arabia and Russia are in favour of raising output while other OPEC members, including Iran, Iraq and Venezuela have opposed this, resulting in a flurry of backdoor diplomacy ahead of the meeting.

Khalid al-Falih, Energy Minister of Saudi Arabia, on Thursday said an increase of 1 million bpd might be “a good target to work with”.

Why is this meeting important for India? 

India is the third largest importer of crude oil, after China and the United States. The recent surge in crude oil prices have increased India’s oil import bill and burdened the trade deficit.

If the trend continues, the government will be forced to cut excise duty, which in turn will increase India's fiscal deficit. This may push chances of a lower credit rating.

Factors that are likely to influence OPEC's decision:

> Since each OPEC country has a notional price of oil which it uses to balance its national budget, the countries with no other major revenue stream such as taxes or remittances to fund their subsidies want a higher oil price. An increase in oil output will pull down prices, as a result of which oil-led economies will earn less for the same volumes.

> The other big uncertainty in markets is potential Chinese tariffs on US crude imports that Beijing may impose in an escalating trade dispute between the US on one side and China, the European Union and India on the other.

"If China's import demand dries up, more than 300,000 barrels per day of US crude will have to find a new destination," energy consultancy FGE said, adding that "this will certainly depress US Gulf Coast prices".

> A marginal increase in crude production could help Saudi and Russia replenish their sovereign wealth funds, which they had to use to meet expenses as crude prices fell until 2016. The increased fund would also help them deal with the ongoing economic issues and regional rivalries.

>  An increase in oil prices could also help OPEC countries stall the shale oil gush from the US and Canada, which can reverse the world’s energy flows. Until now, infrastructure constraints in the US has kept a large chunk of shale oil away from global markets.
First Published on Jun 22, 2018 10:42 am
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