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How 3 Countries Are Controlling The Petrol Price You Pay?

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On Monday, Qatar announced that it will be withdrawing from the Organization of the Petroleum Exporting Countries (OPEC) starting 1 January 2019. The country's energy minister said that it wants to focus on its strength as the world's largest producer of liquified natural gas by increasing production from 77 million to 110 million tonnes annually. It only makes up for 2 percent of OPEC's annual output, which means that the Arab nation may not have much to lose but the decision will impact the group's waning relevance in the crude market.

 

While this news may not seem very significant to daily lives of Indians, we are one of the largest consumers of petroleum products in the world and as a consumer, you must be aware that fuel prices are linked to all the purchases you make. Here is a simplified understanding of how global oil prices are controlled by a few countries.

 
How 3 Countries Are Controlling The Petrol Price You Pay?

What is OPEC?

OPEC was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. It was started to "unify petroleum policies," maintain a regular supply of oil for consumer, income to producers and returns to those investing in the petroleum industry, as per the organization's website.

In reality, this union has been one of the most powerful players in the crude industry, controlling prices by an increase or decrease in their supply, despite making up for just a little more than one-third of the world's production.

The members meet twice a year to vote on any proposals. The next meeting is scheduled for 6 December 2018.

Price dominance

Until the middle of the 20th century, the oil prices were mainly controlled by the US as it was the largest producer of oil. After discovering oil in eastern Texas, the supply further increased, reducing the prices. Then around the time of the first World War, Saudi Arabia and Iran discovered oil and subsequently the OPEC was formed in 1960 to counter the dominance of the western oil companies on leveraging prices.

After the Vietnam war, America increased its reliance on imported oil and, OPEC turned the crude into a seller's market, which means that it controlled the price through its supply rather than through demand. The same is still relevant today. It still uses the world's lack of alternative sources of energy (hat are economically viable) as its pricing power.

You have already experienced it this year. After Venezuela's economic collapse and US sanctions on Iranian imports petrol and diesel prices in India hit all-time highs because there was a cut in supply from the OPEC. Then again when the US president showed his anger towards the increase in oil prices, America's important ally and the de-facto leader of the OPEC, Saudi Arabia promised to increase production and it delivered. That is what caused the fall in fuel prices that we have been seeing for the last two months.

Another player in the pricing is Russia. Though not an OPEC member, it is the organization's strong ally and also increased production in the last two months, just like Saudi Arabia did. In fact, in November, America and Russia pumped more crude than Saudi Arabia.

With its economy being highly dependant on oil exports, Russia has been highly compliant with the proposals made by OPEC and plays an important role in controling oil prices.

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