The decision of the OPEC plus countries to cut oil supply is going to impact the fuel prices and inflation in India and other countries across the world.
Already almost all countries across the world are struggling to control inflation for the past few months. The central banks of all major economies including India have increased their interest rates.
How OPEC plus countries’ decision will impact oil prices, inflation?
The decision of the OPEC plus countries will lead to a drop in the supply of fuel in the market. As per the law of supply and demand, it only means one thing, higher prices are on the way for crude, and diesel fuel, gasoline and heating oil that is produced from oil.
Already the price of Brent crude oil today reached $98.75 per barrel. Many experts have anticipated that the price per barrel may cross $100 soon.
If the price of oil increases, then it will definitely impact the inflation of the country. In the case of India which is the net importer of fuel, the rise in fuel price not only results in the rise in the cost of essential items but also may result in the depreciation of rupees which has been under tremendous pressure for the past few months.
What was the decision of OPEC plus countries?
OPEC plus countries have decided to cut 2 million barrels a day starting next month.
Saudi Arabia’s Energy Minister Abdulaziz bin Salman says that the alliance is being proactive in adjusting supply ahead of a possible downturn in demand because a slowing global economy needs less fuel for travel and industry.
Oil producers are wary of a sudden collapse in prices if the global economy goes downhill faster than expected. That’s what happened during the COVID-19 pandemic in 2020 and during the global financial crisis in 2008-2009.
Reacting to the decision, US President Joe Biden has said “It’s a disappointment, and we’re looking at what alternatives we may have”.
Who will be benefitted from the decision?
Analysts say that Russia, the biggest producer among the non-OPEC members in the alliance, would benefit from higher oil prices ahead of a price cap. If Russia has to sell oil at a discount, at least the reduction starts at a higher price level.
High oil prices earlier this year offset much of Russia’s sales lost from Western buyers avoiding its supply. The country also has managed to reroute some two-thirds of its typical Western sales to customers in places like India.
With input from AP
