March 1, 2024

Lukmaan IAS

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ANGOLA EXITS OPEC: IMPACT ON OIL PRICES & GEOPOLITICS

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TAG: GS 3: ECONOMY

THE CONTEXT: Angola has decided to exit the Organization of the Petroleum Exporting Countries (OPEC), raising concerns about OPEC’s ability to manage global oil supplies, increased US crude output, and geopolitical tensions impacting oil shipping routes.

EXPLANATION:

  • Angola, an oil-producing nation, announced its departure from OPEC, citing that its membership in the organization did not serve its interests.
  • Angola’s decision raises questions about the effectiveness of OPEC’s strategies in stabilizing and influencing oil prices.
  • Angola’s production stands at about 1.1 million barrels per day, a fraction compared to OPEC’s total output of 28 million barrels per day.

Impact on OPEC’s Cohesion and Direction

  • Despite being one of the smaller producers in OPEC, Angola’s exit prompts concerns about the unity and direction of the organization.
  • While its departure may not significantly affect global oil supplies due to its relatively smaller output, it highlights potential internal disagreements within OPEC regarding production quotas and strategies to manage oil prices.

OPEC’s Efforts to Support Oil Prices

  • OPEC, led by Saudi Arabia, has been attempting to stabilize oil prices by implementing production cuts.
  • However, challenges persist as non-OPEC producers, such as the United States, have increased their output, filling the supply gap and impacting OPEC’s ability to control prices.

Increased US Crude Output

  • The US Energy Information Administration (EIA) reported a record rise in US crude oil output to 13.3 million barrels per day.
  • This surge in production, reaching a new high, contributes to global oil market dynamics and may counterbalance OPEC’s efforts to limit supply and raise prices.

Geopolitical Tensions and Oil Shipping Routes

  • Recent attacks by Yemeni Houthi militants on vessels bound for Israeli ports have caused disruptions in global trade by forcing major maritime carriers to avoid the Red Sea.
  • These disruptions raise concerns about potential supply diversions and interruptions due to geopolitical tensions, impacting oil shipping routes.

Israel-Hamas Conflict

  • The conflict between Israel and Hamas has escalated, affecting truce talks and potentially causing further disruptions in the region.
  • These geopolitical tensions add uncertainty to oil markets due to their potential to disrupt supply chains and shipping routes in the Middle East.

Conclusion:

  • The confluence of events, including Angola’s exit from OPEC, increased US crude output, and geopolitical tensions impacting shipping routes due to conflicts in the Middle East, contributes to uncertainties in global oil markets.
  • These factors collectively influence oil prices and market stability, challenging OPEC’s efforts to manage supplies and stabilize prices amid a complex geopolitical landscape.

SOURCE: https://www.moneycontrol.com/news/business/markets/oil-falls-more-than-1-as-angola-decides-to-exit-opec-11940551.html

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