Today, we can see how nations such as the United States and India want to combat the oil cartel.
The Synopsis
The facts are straightforward. High gasoline prices are causing widespread public outrage throughout the globe. And when this type of dissatisfaction simmers for a long time, it typically reflects adversely on incumbent leaders' popularity. It makes no difference who you are. You don't want to put people's patience to the test for too long. As a result, something has to give. Alternatively, someone.
And that someone is the Organization of Petroleum Exporting Countries (OPEC).
For months, the infamous oil cartel — made up mostly of Middle Eastern oil-producing nations — has refused to raise oil supplies. Granted, there was a period last year when there was an abundance of supplies. However, with the post-pandemic rebound, oil consumption is surging. We're aware of it. They are well aware of this. Everyone is aware of it. They should ideally be coming in and ramping up supplies to help with the recovery. Despite the fact that they produce the vast majority of the world's oil, they refuse to budge. And many oil-consuming countries, such as India, China, and Japan, are running out of options.
They've asked the cartel to speed up production so that prices don't spiral out of control. In March, the Indian government, for example, presented its case. Dharmendra Pradhan, our oil minister, has encouraged Saudi Arabia and OPEC to produce more oil in order to stabilise prices. Saudi Arabia's energy minister responded by jokingly urging India to exploit its strategic petroleum reserves.
In other news, US Vice President Joe Biden is concerned about increasing gasoline costs. As several surveys reveal, the President's popularity ratings have dropped in recent days as consumer confidence has been eroded by rampant inflation (mostly caused by high gasoline prices). Even the United States seems to be shaken, and they've been attempting to reason with the Saudis. The Saudis, as the cartel's de facto leader, have refused to surrender, resulting in a standoff.
However, the United States has had enough and has gone on the attack. They're fighting back, and they're enlisting the help of some of the world's most powerful oil users to take on OPEC. In a first-of-its-kind move, the United States, China, India, Japan, South Korea, and the United Kingdom have agreed to release a part of their strategic petroleum reserves in an effort to keep crude oil prices in check.
Consider strategic reserves to be a crude stockpile in case of an emergency. It's only designed to be utilised in the most dire of circumstances, like as wars or natural disasters. However, since there is no clear requirement against its use in non-crisis conditions, nations like as India and the United States may still part with their reserves if they so want.
That's exactly what they're doing now. The United States, for example, is releasing 50 million barrels of strategic reserves from a stockpile of about 700 million barrels. India has made its fair share of contributions by releasing 5 million barrels from its own stockpiles. China, Japan, South Korea, and the United Kingdom are all following suit, and this seems to be a frontal attack on the oil cartel.
Does this, however, imply that it will genuinely frighten OPEC?
Almost certainly not.
As you can see, the concept has some validity. There are fresh concerns about long-term lockdowns in Europe and other areas of the globe today. This practically indicates that if things do not improve, we may once again have surplus oil supplies floating about. If lockdowns become more prevalent, oil prices might plummet once again. When you add in the fact that several nations have elected to release more reserves, it's possible that prices may be impacted in the near run.
Strategic petroleum reserves, on the other hand, are often built up to deal with crises. They're back-ups. They were never meant to be used as a tool to influence price changes. That is, even if a significantly coordinated effort were made, the little amounts would not have a significant impact on pricing. For example, India is planning to release 5 million barrels of oil, which, although large, is equivalent to the amount of oil we use in a single day. It's not much at all.
OPEC isn't even required to respond. They may just sit tight and wait for it to pass. In reality, these changes are most likely amusing to them. The cartel has already made a statement indicating that they would most likely react by cancelling any plans to increase their own output (when they meet next week). And this might exacerbate the situation, negating any good impact on oil prices that the concerted effort would have.
So, even if we wind up gambling away a chunk of our hard-earned cash, we'll have to rebuild it someday. And the fact that we'll have to buy the majority of this stuff from the same oil-producing nations may not bode well for us.
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