Ending months of hand-wringing, OPEC has finally agreed to cut oil production, for the fi rst time in eight years. The move could end the supply glut, which sank prices for two years. The breakthrough deal signals cooperation among OPEC’s 14 member nations, including Saudi Arabia, which until now was reluctant to toe bitter rival Iran’s demand to continue production at pre-nuclear sanction levels. Riyadh’s decision to make an exception for Tehran, indicates the former’s desperation and dependency on oil. Falling prices saw Saudi Arabia nearly empty its coffers.
Any price rise will boost the sinking fi nances of oil-producing countries like Russia besides allowing companies to revive abandoned projects. Global oil prices are currently hovering around $46 per barrel and estimates peg it around $55 per barrel if OPEC slashes production. But, the absence of such a deal meant prices could have tanked below $40. As of October, oil demand was 96.91 million barrels per day, while supply was at 97.8 mn bpd. Strictly speaking, the difference isn’t much and the pressure on OPEC to reduce output implies hidden forces were at play. While OPEC nations agreed to alter individual quotas, non-OPEC nations like Brazil and Canada aren’t party to this. 2017 could see relentless global supply, and may not spike prices much after all.
For India, lower prices mean a lighter current account defi cit, with the crude import bill reducing by half. Oil imports account for nearly 75 per cent of the requirement, so, even a marginal price hike will prove costly. Also, when oil hit a 12-year-low to touch $27 per barrel in January, from a high of $115 in June, 2014, instead of lowering prices at the pump, the government raised excise duties and taxes, which now constitute 52 and 40 per cent for every litre of petrol and diesel respectively. With less room for higher levies, the good news for consumers is, fuel prices are unlikely to gyrate, irrespective of the global scenario.