Opec to reduce output, fuel prices may rise

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NEW DELHI: Pump prices are likely to see moderate rise after the recent spell of decline as OPEC, the grouping of 14 oil exporting countries accounting for about 38% of global supplies, on Thursday agreed to deepen production cut by 1.5 million bpd (barrels per day) to lift prices hammered by falling demand as the coronavirus outbreak infects economic activities in more and more countries.
The effectiveness of the deepest oil production cut since the 2008 global financial crisis will depend on the outcome of Friday’s meeting of the ‘OPEC+’ grouping that includes non-OPEC producers such as Russia. As a non-OPEC exporter, Moscow pulls a hefty punch in the oil market and has to sign up for the cut to have the desired effect.
OPEC also agreed to extend the existing cut of 2.1 million bpd till the end of 2020. Russia has so far shown little appetite for deepening the cut but Moscow is known to keep the Saudi Arabia-led grouping guessing till the last minute.
If the latest proposal goes through, it will add up to a total reduction of 3.6 million bpd, or about 3.6% of global supplies. How quickly this will ease the downward pressure on oil prices, which have slid 20% off their January highs, will largely depend on how effectively the coronavirus outbreak is dealt with.
The markets will remain volatile in the meantime as 2020 demand growth forecasts are slashed as factories close, flights are cancelled and other business activities slow down globally. This will keep fuel prices on the edge, affect the government’s social sector plans and ability to hand out incentives for reviving the pace of economic growth.
On Thursday, global benchmark Brent rose 0.6% on news of OPEC’s plan but gave up most of those gains on hint that Russia was yet to sign up.
OPEC+ had resorted to production cut for the first time in December 2016, with supplies reduced by 4.2 bpd in January 2017. The cut was extended in December 2019 by 1.7 million bpd and Saudi Arabia voluntarily slashed its own production by an additional 400,000 bpd for three months. The 2.1 million bpd cut was scheduled to end this month.

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