What is happening in the oil market?

Global oil prices have been reducing over the last few months thanks to the increase in oil production. But, will it all change when OPEC+ decides to cut down oil production to increase oil prices?  

1. OPEC+ might cut down on oil production to hike international prices: As per the Wall Street Journal, The Organization of the Petroleum Exporting Countries (OPEC) and Moscow-led allies that are collectively known as OPEC+, will decide on reducing oil production in order to raise oil prices. The oil cartel is considering cutting down more than 1 million barrels a day because oil prices have fallen in recent months from $120 per barrel in June 2022 to below $85 in September 2022. (This is expected since OPEC reported the highest production output of oil in September 2022 since April 2020) So, OPEC+ will benefit from cutting down production as it will hike oil prices internationally. 

This move will be quite a contrast to US President Joe Biden's desires, who recently visited Saudi Arabia and urged them to request OPEC+ to pump more oil which would bring down gas prices in the US. 

Why is reducing oil production not so beneficial? The worry is that most countries are already facing rising inflation, slow growth and fearing an upcoming recession. Hiked oil prices will only worsen the situation as most countries import oil from OPEC+ nations and will have to shell out more. 

2. International oil prices rise: US crude oil rose by 3% to $81 per barrel and brent crude rose 2.95% to $87.65 per barrel after news of OPEC's possible oil production cuts hit the global stock markets.

3. Windfall tax reduces: A windfall tax is a one-off tax that the government levies on companies in a specific industry when the industry makes windfall profits. In 2022, the government levied this tax on crude oil, petrol and diesel since oil prices shot up like never before. But now that global oil prices have been reducing, the government has been consistently decreasing the windfall tax on the production of crude oil, diesel and jet fuel. The tax on domestically produced crude oil has come down from Rs 10,500 per tonne to Rs 8,000 per tonne, the levy on exports of diesel is reduced from Rs 10 to Rs 5/litre and the levy on aviation turbine fuel is entirely scrapped. 

4. As windfall tax reduces, share prices of oil companies zoom: As oil companies have to pay lesser taxes from the coming quarter on the production of oil and diesel and export of fuel jet, share prices of oil companies went up as investors share the happy sentiment. Shares of oil exploration and production companies zoomed up to 9.5% on the BSE (intraday):

5. India reduces base import price for oil: India reduced the base import prices of crude and refined palm oil, crude soya oil and gold. This will directly impact oil and gold importers, who now have to pay lesser taxes on imported oil.

That's all on the oil front as of now.