November 29, 2021
A Pricey Slip n’ Slide
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Good morning. NFT (Non-fungible tokens) is the word of the year by Collins Dictionary. You may have come across this word many times this year. There is a reason for that. According to Collins, the usage of NFT increased by 11,000% this year. NFT sales have increased significantly in 2021, with people from entertainment to sports jumping on the bandwagon. NFT is basically a certificate to state that you own something digital. It can be anything from viral videos to tweets to memes which can be sold as art.
📰 FEATURE STORY
Will digging up buried oil help control global prices?
On April 22, 2013, celebrity chef mogul, Martha Stewart tweeted something that has become quite relevant today: “Oil”. With oil prices rising globally due to high demand and low supplies from OPEC nations, the world is currently being cornered into quite an uncomfortable spot. Countries, led by the US, are now opening up their rainy day crude oil reserves to simply stabilise prices.
We definitely cannot take another price hike and OPEC knows that. But a stark fall in demand, leading to the lowering of prices, is clearly just bad for business. Sure, OPEC is no pushover, but neither is the international community. Now, we have to figure one thing out: who’s going to win?
You must have noticed the obscenely high prices of petrol that have been haunting us for the last couple of months. Turns out, this isn’t unique to India alone. Most oil-consuming nations are facing a crisis of oil prices because of the Organization of the Petroleum Exporting Countries’ (OPEC) tight supplies. The height of the Covid-19 pandemic saw a significant decrease in the demand for oil. This caused OPEC to put a cap on oil supplies for a while to not oversaturate the market.
Though this made sense at the time, the world has now grown and come into its recovery phase. And the problem soon became OPEC’s complete disregard for that. While demands rose in recovering economies, OPEC kept its lid on oil supplies considerably tight. You don’t need to be an economics major to figure out what happened next. With high demand and low supply, prices rose which, from OPEC’s perspective, is very good. Unfortunately for them, you can’t have too much of a good thing. Enter Strategic Petroleum Reserves (SPRs).
Since energy is everything and most countries depend on fossil fuels for the same, they have set up SPRs that hold a certain amount of oil for emergency purposes. After several failed attempts to get OPEC to cool down prices, the US asked a number of oil-consuming nations to release a couple of barrels from their own SPRs to even things out. Till now, India, China, Japan, South Korea and the UK have agreed to accompany the USA in releasing oil barrels. But the threat of OPEC retaliating by cutting supplies even further is very real.
Logically, it makes sense
In a letter to US President Joe Biden, 11 senators wrote that “high gasoline prices have placed an undue burden on families and small businesses trying to make ends meet”. Clearly, this is a universal issue considering Covid-19’s uppercut to most of the world’s economies. The last thing we need right now is more expensive energy. Back in December 2020, OPEC said that they would “gradually increase oil production by 400,000 barrels per day each month.” Unfortunately, this still isn’t enough as the committed production remains 5.4 million barrels less than what is required.
It’s simple, really. The world needs oil and most nations, due to their SPRs, have enough to meet demands, even if it is for a short period of time. Just talks of a “coordinated release of reserves” from the countries that need that oil the most brought prices down. Late October this year, saw the price of one barrel reach $82.3. After just getting the wind of possible releases from SPRs, the price of a barrel dropped to $80 last week. A proper, collective and gradual release is bound to turn things around. At least for long enough to get OPEC to fix price rates or, due to environmental commitments, wean themselves off of oil.
For India, the high global prices go beyond just day-to-day tensions. According to officials, any increase will “affect its import bill, stoke inflation and increase the trade deficit.” In fact, some even say that reigning in oil prices will also bring down the prices of steel and raw materials on a global scale. Admittedly, the total number of barrels to be released by all five countries will only add 70 to 80 million oil barrels more to the mix already in circulation. Though this is still “less than the 100+ million barrels” expected by the market, the prices are likely to go down.
Practically, it’s just a symbolic gesture
Officials might agree that the move is a “symbolic gesture” to show OPEC nations that they will no longer heed to the suppliers’ whims and fancies. But their optimism about the effectiveness of this decision is quite frankly, misplaced. According to analysts over at Goldman Sachs, the barrels released will only equate to a “drop in the ocean”. Not only will this release do very little to decrease oil prices, especially at petrol pumps, but it will also give OPEC and other major oil suppliers a legitimate cover to further decrease supplies. Basically, having the exact opposite effect than imagined by the White House.
Experts also believe that this, at least from the American perspective, is more of a political move than anything else. According to economic policy consultant Tony Fratto, “every president from one time or another has used the Strategic Petroleum Reserve for one reason or another. This is the first time that it’s being used simply to address prices.” It basically makes it clear to market participants that a release such as this, is only a one-off. Considering how small the amount of oil being released is, it clearly isn’t sustainable. Thus, it becomes a way to show the American people that their president cares.
Another thing to consider is that OPEC isn’t the only one selling oil. They might be one of the major sellers but they clearly aren’t alone. All it takes is one market force to increase prices again to undo all the work tapping into SPRs might have done. In fact, after the initial decrease in the price of an oil barrel to $80, it’s back up to $82.3. And, there already are reports of Saudi Arabia and Russia planning to “pause their recent efforts to provide the world with more crude”. Seeing that we’re dealing with substantial control over the global energy market, the world’s going to need a little more than digging up buried oil.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
Schizophrenic core – At the heart of Hindutva lies a telling dichotomy
For the Left:
‘Yes to Hinduism, no to Hindutva’ is lazy liberal response, and 3 decades late
🏴 STATE OF THE STATES
A pride of lions at a port (Gujarat) – At Port Pipavav in Amreli district, managed by the world’s biggest container terminal operator – Denmark-headquartered AP Moller Maersk, lions tread without fear of human interference. Wildlife experts say this is the only such port that is home to an endangered wild animal. For the employees, seeing lions there is a regular occurrence.
Cigarette troubles (Haryana) – 98.28% points of sale in the state displayed cigarettes near sweets to attract children. According to a study by Delhi-based voluntary organisation — Consumer VOICE, several tobacco companies are targeting children as young as eight years old. The report states that this violates Sections 5 and 6 of the Cigarettes & Other Tobacco Products Act. The overall purpose of the study was to reveal gaps in the Act that allow companies to target youth.
Regularisation of unauthorised properties (Karnataka) – The state is considering a plan to regularise lakhs of unauthorised properties in rural areas for a fee. It comes as the Supreme Court stayed a similar plan in urban areas. The scheme can be a revenue source for the government as a fee would be levied per square foot. The properties will then come under e-Swathu, the rural property database. It will make them eligible for registration and loans.
Nat Geo showcase (Jharkhand) – The National Geographic Channel will showcase various hotspots in the state. A team from National Geographic will meet senior government officials and finalise an agreement on making documentaries on the state’s wildlife, people, and culture. In 2014, the channel did something similar showcasing the state’s potential. Earlier this year, it made a documentary series on Arunachal Pradesh.
Perfume tree to the rescue (Assam) – Tea growers in Assam face challenges like high production costs, low profit margin, and labour issues. The endangered agarwood tree has been an opportunity for those struggling. It is native to the state and is used as an aromatic, medicine and for religious purposes. The state government notified the Assam Agarwood Promotion Policy 2020 to salvage the tree. It offered incentives to farmers to raise agarwood plantations.
🔢 KEY NUMBER
1020:1000 – India’s sex ratio according to the National Family Health Survey – 5 (NFHS-5). It is the first time that the number of women surpassed men in India. The sex ratio at birth has also increased from 919 in 2015-16 to 929 in 2019-2020.