Context: Recently, the latest round of meetings among the OPEC+ group of oil-exporting countries has stalled as the UAE has pushed back proposals making an increase in crude oil supply conditional on an extension to an output agreement.
Background

• The OPEC+ group of countries had entered into a two-year agreement in April 2020.
• It entailed steep cuts in crude production to deal with a sharp fall in the price of oil as a result of the Covid-19 pandemic.
• The price of Brent crude hit an 18-year low of under $20 per barrel in April 2020 as economic activity around the world crashed as countries dealt with the pandemic.
• The initial production cut by OPEC+ was about 10 million barrels per day or about 22 per cent of the reference production of OPEC+ nations.
• In November 2020, the price of Brent crude started climbing consistently and has now risen to $76.5 per barrel which is up from about $40 per barrel at the end of October.
• The OPEC+ group ran into sharp criticism from developing economies, including India, for deliberately maintaining low supply levels to raise prices.

Issues associated with crude oil production by OPEC

• The UAE agreed that there was a need to increase crude oil production from August, but did not agree to a condition that the two-year production agreement be extended by six months.
• The UAE government said that it made “no sense to attach conditions to increase in August,” noting that the only option offered by the JMMC included an extension to the current agreement.
• The UAE’s key objection to the existing agreement is the reference output used to calculate the total production apportioned to each oil-exporting country.
• The UAE noted that the baseline reference production levels were unfair and that it would be open to extending the agreement if baseline production levels were reviews to be fair to all parties.

Impact of lack of consensus among OPEC+ on India

• If the UAE and other OPEC+ nations do not reach an agreement to increase production in August, expected relief in the form of lower crude oil prices could be delayed.
• India is currently facing record-high prices of petrol and diesel, with pump prices of the former exceeding Rs 100 per litre in 13 states and Union Territories.
• High crude prices have led to Indian oil marketing companies hiking the price of petrol by about 19.3 per cent and that of diesel by about 21 per cent since the beginning of 2021.

Additional Information
Organization of the Petroleum Exporting Countries (OPEC)

• It is a permanent intergovernmental organization of 13 oil-exporting developing nations.
• It was created at the Baghdad Conference in 1960.
• It was initiated by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
• Its objective is to co-ordinate and unifies petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers.
• The OPEC Secretariat is located in Vienna which also functions as the headquarters of the organization.