Vienna: – It was decided in the meeting of OPEC, the organisation of oil-producing countries, that the oil production should be maintained at the current levels. But Saudi created a sensation with an announcement that it will be cutting down its oil production by 1 million barrels. This Saudi decision comes as a jolt to the international community, as OPEC and the crude oil rates in the international markets jumped by more than 5%. Many of the major world countries are announcing lockdowns once again, because of the increasing spread of the Coronavirus pandemic; this Saudi decision becomes significant against this background.
The global economy had slowed down at the beginning of the last year, because of the Coronavirus pandemic, which started from China. Due to the lockdown, which had to be imposed in many countries, brought the industry sector and day-to-day life to a grinding halt. The oil sector took a major hit due to the situation. In March 2020, the Crude oil rated dipped to $23 per barrel. International analysts had warned that these rates could dip further to $10 per barrel level.
But a few months ago, many countries withdrew the lockdown and decided to give an impetus to day-to-day transactions and the industry sector. The crude oil rates started recovering, riding on this. Saudi Arabia and some other OPEC countries had proposed a reduction in oil production. But as Russia and some other countries opposed the move, no significant rise was seen in the oil rates. This delivered strong jolts to the oil-dependent economies.
Since the last two months, the severity of the Coronavirus pandemic seems to be increasing and European and Asian countries, are taking decisions of lockdown, once again. Experts from the health sector have issued warnings that the third wave of Coronavirus pandemic has started. Therefore, there are indications of the industry sector slowing down, once again. It is predicted that this will have a direct effect on oil demand. Therefore, the meeting between OPEC and Russia, which started on Monday, was considered very important.
It has been observed since the last few months that the differences between OPEC, the association of the oil-producing countries, and Russia are intensifying. Saudi Arabia, the leader of OPEC, and other members had proposed a reduction in oil production, in view of the indications of a reduction in demand. But Russia dismissed the proposal. A few years ago, Russia had made a similar proposal to Saudi to reduce oil production, in view of the declining demand, but Saudi had discarded the proposal. Now Russia seems to be avenging that, by dismissing the proposal given by Saudi and OPEC.
Against this background, the decisions taken on Tuesday and the jolt delivered by Saudi become important. In the Tuesday meeting, the current cut in production should be continued till February. While taking this decision, Russia and Kazakhstan have been permitted to increase oil production by 75 thousand barrels per day in February and March. The OPEC members also will be increasing their oil production in March. Even after this decision, Saudi announced the decision to reduce oil production, by 1 million barrels per day, for February and March.
The crude oil rates jumped by nearly 5%, in 24 hours, following this Saudi announcement and the international markets recorded a price of $54 per barrel. US crude oil also crossed $50 per barrel. The oil rates have succeeded in crossing the $50 mark, for the first time since February 2020.