Crude oil-related stocks crash amid escalation in US-Iran tensions
GS Paper III
Topic: Indian economy
Mains: OPEC, OPEC+
What’s the News?
- US oil markets created history on 20th April 21, 2020 when prices of West Texas Intermediate (WTI), the best quality of crude oil in the world, fell to “minus” $40.32 a barrel in New York.
- Not only is this the lowest crude oil price ever known, the previous lowest was immediately after World War II — but also well below the zero-mark.
Background:
- Historically, the Organization of the Petroleum Exporting Countries (OPEC), lead by Saudi Arabia, which is the largest exporter of crude oil in the world (single-handedly exporting 10% of the global demand), used to work as a cartel and fix prices in a favourable band.
- It could bring down prices by increasing oil production and raise prices by cutting production.
- In the recent past, the OPEC has been working with Russia, as OPEC+, to fix the global prices and supply.
- It must be understood that cutting production or completely shutting down an oil well is a difficult decision because restarting it is both costly and cumbersome. Moreover, if one country cuts production, it risks losing market share if others do not follow suit.
- The global oil pricing is by no stretch an example of a well-functioning competitive market. In fact, it’s seamless operations crucially depend on oil exporters acting in consort.
Importance of crude-oil:
Crude oil is an essential commodity for manufacturing synthetic rubber which is used for making tyres. It is also a key element in manufacturing paints.
U.S reaction:
- US became the largest producer of crude oil in 2018. And that is one reason why, unlike all the previous US Presidents, who always pushed for lower crude oil prices, especially in an election year, Donald Trump has been pushing for higher oil prices.
- Saudi Arabian officials have forecast that total global supply cuts from oil producers could amount to nearly 20 million bpd, but that includes voluntary cuts from nations like the United States and Canada, which cannot simply turn on or off production in the same way as most OPEC nations.
- Crude oil futures fell on Monday, with US futures touching levels not seen since 1999, extending weakness on the back of sliding demand and concerns that US storage facilities will soon fill to the brim amid the coronavirus pandemic.
Reasons behind:
- Even before the Covid-19 induced global lockdown, crude oil prices had been falling over the past few months. They were closer to $60 a barrel at the start of 2020 and by March-end, they were closer to $20 a barrel.
- The price of a commodity falls when supply is more than demand. To a great extent, oil markets, globally and more so in the US, are facing an enormous glut.
The start of trouble-Supply and demand mismatch:
- But in early March, this happy accord came to an end as Saudi Arabia and Russia disagreed over the production cuts required to keep prices stable.
- As a result, oil-exporting countries, led by Saudi Arabia, started undercutting each other on price while continuing to produce the same quantities of oil.
- This was an unsustainable strategy under normal circumstances but what made it even more calamitous was the growing spread of Coronavirus, which, in turn, was sharply reducing economic activity and the demand for oil.
- With each passing day, the developed countries were falling prey to Covid-19 and with each lockdown, there were fewer flights to be boarded, fewer cars to be used etc.
By the time the Saudi Arabia and Russia discord was sorted out last week, under pressure from US President Donald Trump, it was possibly too late. Oil-exporting countries decided to cut production by 6 million barrels a day — the highest production cuts — and yet the demand for oil was shrinking by 9 to 10 million barrels a day.
Aarogya setu App must for Labourers
GS Paper III
Topic: Science and Technology
Mains: Concerns associated with Aarogya Setu App
What’s the News?
Central government organisations involved in construction, including various metro rail corproations, were instructed by the Central Public Works Department (CPWD) to ensure that “all labour personnel/staff” returning to work from Monday have downloaded the government’s COVID-19 tracking app — Aarogya Setu.
Background:
- Based on the experiences of South Korea and Singapore, India has made its own effort through the app which will be an essential tool in India’s fight against the pandemic.
- The app being an e-pass which could subsequently facilitate travel from one place to another.
- While the country remains in a lockdown till May 3, migrant workers, including construction workers, have been left with no work and no income during the period.
- The advisory comes as the Union Home Affairs Ministry has relaxed some restrictions starting Monday, including for construction activity under certain conditions.
Aarogya Setu app:
- Aarogya Setu app enables people to assess themselves the risk for their catching the Corona Virus infection. The app calculates this on the bases of user’s interaction with others, using cutting edge Bluetooth technology, algorithms and artificial intelligence.
- After instalment in a smart phone, the app detects other devices with AarogyaSetu installed that come in the proximity of that phone. The app can then calculate the risk of infection based on sophisticated parameters if any of these contacts is tested positive.
- Aarogya Setu app is expected to help the Government in taking necessary timely steps for assessing risk of spread of COVID-19 infection, and ensuring isolation where required.
Pre-conditions:
- Every organisation should ensure that all labour personnel/staff get Aarogya Setu app downloaded on their mobile, when he/she resumes work.
- The organisations were also asked to make sure there is no resumption of work in coronavirus containment zones and only workers still present at the camps should be asked to return to work at a particular site.
- Standard operating procedures, such as those issued by the National Real Estate Development Council (NAREDCO) for private developers, taking into account the advice of the Ministry of Health and Family Welfare and MHA should be prepared and followed, the organisations were told.
Concerns:
- While the Labour Ministry has asked States to provide construction workers aid through their respective Building and Other Construction Workers Welfare Boards, the reality was that the majority of migrant workers were not registered with these Boards and/or did not they have bank accounts are required for transfer of funds.
- Availability of smartphones among workers is very low.
- Trade unions also expressed concerns over the government’s decision to start movement of labourers within States/UTs. The All-India Trade Union Congress said in a statement on Monday that the government had ignored the demands of the stranded labourers who had been asking to go back home.
Other concerns:
- Another factor that might hinder the working of the app is that it requires Bluetooth and GPS to be always functional. “There is a technical concern too, called ‘signal interference’.
- Bluetooth operates on the 2.4 GHz band. When you have too many Bluetooth enabled devices working in close proximity with devices such as WiFi routers, which also work on the same frequency, it might cause interference. This, in turn, will again hamper the efficiency.
- Privacy concerns, which had led to as many as nine organisations and at least 11 individuals writing to the Centre flagging the usage of and processing of personal data of individuals.
- Concerns of proportionality– A clause in the app’s privacy policy which allowed the government to share personal information uploaded to the cloud with such other necessary and relevant persons in order to carry out necessary medical and administrative interventions.
- Lack of Law: India does not have a law dealing with personal data protection which should be limiting data collection and processing.
- Limited liability clause of the app: It says that the government would not be responsible if inaccurate information was fed. While it exempts the government from being blamed if the information is not correct, it also means that no liability can be fixed on the government even if the personal information of the users so collected and stored is leaked in the future.
Conclusion:
Aarogya Setu is an important step in our battle against COVID-19. It offers useful knowledge through leveraging technology. As more and more people use it, it will increase its efficacy.