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OPEC Countries Makes Drastic Cut in Oil Production

By Foo Jia Le



NEW YORK – Earlier today, the delegates representing the Organisation of the Petroleum Exporting Countries (OPEC) gathered at the UN headquarters to express their concerns on the oversupply of oil.

The Saudi Arabian Channel:

The suggestion for a channel had raised many eyebrows amongst the representatives of OPEC countries. As proposed earlier by the Saudi Arabian leader, OPEC countries will come together as one to manage the oil market stability. During the conference, Saudi Arabia had urged allied partners to put more effort into controlling oil production, to ensure a swift road to a full oil market recovery.

Although OPEC countries have yet to reach a final verdict, the idea of having a channel has garnered much support from the countries as they seek for a solution to stabilise the market economy in the long run.

On the contrary, the Russian leader had indicated that it would be Russia’s best interest to seek a supply increase instead, claiming that the oil market had already been balanced and would be only redundant to seek a solution on a non-existent issue. Relationships between Saudi Arabia and Russia remain tense as their leaders struggle to see eye to eye.

Sovereign Funds:

Although the project for a channel between all OPEC countries is still pending, United Arab Emirates (UAE), Venezuela, Sudan, and other OPEC countries had asked to start a Sovereign Wealth Fund (SWF) to manage the possible increase in oil prices when countries halt oil productions while the Saudi Arabian Channel pans out.

The SWF will be used to provide temporary funding for a country to sustain itself enough to prevent bankruptcy. All OPEC countries who wish to be involved will have to chip in 10% of their income every month and OPEC countries would take turns as treasurers for the funds to prevent corruption.

Saudi Arabia:

An update on the crude oil production cut announced on 8th June 2021, Saudi Arabia has decided to continue with the production cut and review their decision at the end of the month. Saudi Arabia's Energy Minister also clarified during the press conference that the decrease in production was to support the economies of OPEC, OPEC+ countries as well as for the betterment of the oil industry. " and hope to see an improvement to the covid-19 situation soon.

The Saudi Arabian leader shared in his press conference that he understands that oil producers, such as Russia, are ready to pump more oil into the market. However, many less economically developed countries are not prepared for the supply boost and would prefer more time to work on a long-term solution to sustain the market economy of their country. Saudi Arabia recognises these difficulties faced and “will not leave any man behind”.

World:

Looking at the oil productions of countries outside OPEC, oil companies in Asia. In recent months, China seems to have put the pandemic behind them, Chinese officials say that China is expected to increase oil exports by 31.7% yearly and that the price rebound would also be beneficial for an energy industry forced to lay low by the demand-sucking pandemic.

References:

1. Meredith, S. (2021, March 4). Oil prices jump as OPEC+ keeps production largely steady, Saudi Arabia continues voluntary cut. CNBC. https://www.cnbc.com/2021/03/04/opec-meeting-saudi-arabia-and-russia-to-review-production-policy.html.

2. Investopedia. (2021, May 7). A Sovereign Wealth Fund (SWF) Is Used to Benefit a Country's Economy. Investopedia. https://www.investopedia.com/terms/s/sovereign_wealth_fund.asp.

3. Sovereign Wealth Funds: Their Role and Significance -- A Speech By John Lipsky, First Deputy Managing Director, International Monetary Fund. IMF. (2008, September 3). https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp090308.

4. Said, S., & Faucon, B. (2021, January 5). Saudi Arabia to Cut Oil Production Sharply in Bid to Lift Prices. The Wall Street Journal. https://www.wsj.com/articles/saudi-arabia-russia-reach-compromise-on-opec-plus-production-plan-11609857544.

5. Analyst Daisy Xu, G. P. V. (2021, April 16). China to increase oil product exports by 31.7% on year in 2021: ETRI. S&P Global Platts. https://www.spglobal.com/platts/en/market-insights/latest-news/oil/041621-china-to-increase-oil-product-exports-by-317-on-year-in-2021-etri.


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