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All you should know about OPEC deal and its impact on India

All you should know about OPEC deal and its impact on India

Organisation of Petroleum Exporting Countries (OPEC) on Thursday reached an agreement to cut oil production for the first time since 2008 after an informal meeting in Algiers.

Organisation of Petroleum Exporting Countries (OPEC) on Thursday reached an agreement to cut oil production for the first time since 2008 after an informal meeting in Algiers.

"This is the first OPEC deal in eight years! The cartel proved that it still matters even in the age of shale! This is the end of the 'production war' and OPEC claims victory," told Phil Flynn, senior energy analyst at Price Futures Group to Reuters.

This move would effectively re-establish OPEC production ceilings that was abandoned a year ago.

Following the deal, the global oil prices rallied over 6 per cent and extended gains in Thursday's trade.


Impact on India

India, being the fourth largest importer of crude oil, imports 85 per cent of total oil and 95 per cent of gas from OPEC nations.

Abnish Kumar, Director & research head, Amrapali Aadya Trading & Investment said decision taken by the OPEC country is likely to be taken as a wake-up call for the country like India as Indian economy immensely benefited from the cheaper oil prices.

"Lower oil prices kept the economy on the shining path and managed to keep inflation under control. Following the OPEC decision, there is likely to be a positive cascading impact on the country's fiscal scene and inflation dynamics," said Kumar.

Here is all you need to know about the deal:


1. OPEC would reduce output to a range of 32.5-33.0 million barrels per day. OPEC estimates its current output at 33.24 million bpd.

2. However, how much each country will produce still hasn't been decided and will be taken forward in the next meet scheduled in November.

3. The group's leader Saudi Arabia eased its stance on Iran amid the pressure from low oil prices. Iran has been exempted from this limit until its production recovers from the lifting of the EU sanctions earlier this year.

4. Iran, Nigeria and Libya are the countries that would be allowed to produce 'at maximum levels that make sense'.

5. There is a possibility that invitations to joint cuts may be extended to non-OPEC countries.

6. Traders say the OPEC deal is unlikely to affect Middle East crude supplies to term customers in Asia for next year, but may crimp additional volumes that producers have been offering throughout 2016

7. Kim Woo-kyung, spokeswoman at SK Innovation, owner of South Korea's largest refiner says the cut is not significantly huge but could affect support prices, increase the value of refiners' crude inventories and margins by pushing up oil product prices.

8. Traders speculate that higher oil prices could encourage US shale producers to increase output and fill in supply gaps left by OPEC.

9. According to International Monetary Fund (IMF) Iran is suffering less pressure from the halving in crude prices since 2014 and its economy could expand by almost 4 percent this year.

10. The OPEC deal will help Saudi Aarbia as it faces a second year of budget deficits after a record gap of $98 billion last year. The country's stagnating economy and is being forced to cut the salaries of government employees.

(With inputs from agencies)