NEW DELHI: International brent crude oil prices hit a four-year high of $80.94 per barrel on Monday, after oil producers declined to announce an immediate production increase to meet supply shortages from Iran due to US sanctions.
Commodity trading houses say the ‘sit back and wait’ approach signalled in Algeria by OPEC+ is likely to see brent crude prices breach the $100 per barrel mark by early-2019. OPEC+ is a loose alliance of the Saudi Arabia-led Organisation of Petroleum Exporting Countries (OPEC) and other major suppliers like Russia.
Trafigura Group’s co-head of oil trading Ben Luckock on Monday estimated that brent crude could hit $90 per barrel by Christmas, 2018, and $100 by early 2019. Such an increase would see international benchmark product prices rise, pushing up retail prices at Indian fuel pumps which are calculated based on a 15-day rolling average of international benchmarks.
Rising crude prices have already sent prices at Indian fuel pumps soaring. Petrol in Mumbai crossed the Rs 90 per litre mark for the first time on Monday, retailing at Rs 90.08 per litre.
And, despite OPEC+’s position that it has spare capacity to ramp up output, analysts say meeting the shortfall will be difficult. “The market does not have the supply response for a potential disappearance of 2 million barrels a day (bpd) in the fourth quarter (Oct-Dec),” Mercuria Energy Group’s co-founder Daniel Jaeggi said. JP Morgan and Trafigura meanwhile estimate that the sanctions could lead to a loss of 1.5 million bpd in supply. The reluctance of OPEC+ to bow to US demands to hike output is also driving the prices up.
“Saudi Arabia and Russia… look like they have had enough of the US aiming to squash Iranian supplies with its sanctions, while exhorting them to pump more to plug the shortfall, and lambasting them for restraining production and driving up prices,” Vandana Hari, founder, Vanda Insights noted.
According to sources, Indian refiners are already working to figure out how to cut down the burden. One proposal discussed is to cut down inventory. For instance, if refiners hold 18-20 days of inventory, cutting it down by even three-four days can make some impact. This, along with measures like ethanol blending, is being mooted to reduce import dependence.