Advantage India as Global Crude Pool Overflows

Published: 25th December 2015 05:16 AM  |   Last Updated: 25th December 2015 05:16 AM   |  A+A-

NEW DELHI: With price of Brent crude already hitting a 11-year low, any upward movement in the price looks unlikely in the coming quarters as the Organization of the Petroleum Exporting Countries (Opec) refused to restrain its production.

West Texas Intermediate (WTI) crude was trading at $100 a barrel during July-August of 2014, and it dropped to $50 in December and down to almost $40 in January 2015. At present, it is hovering below $35 a barrel, as oil analysts believe that the recent hike in interest rate by the US Fed and Opec decision in its last meeting not to put a cap on its production, will create a scenario of oversupply and weakening demand.

Ashutosh Bharadwaj, an oil analyst with SMC, said already the International Energy Agency has warned that global oversupply could worsen in 2016. Also, Opec production has moved up from 30 million barrels per day (bpd) to 31 million bpd. Of them, Saudi Arabia, the largest producer, had registered an output of 9.7 million  bpd.

Advantag.JPGAccording to Kirit Parikh, oil and gas expert, “Once the economic sanctions against Iran are fully lifted and oil production resumes to its optimum level, Tehran can pump in 1.5 million bpd  into the crude pool that is already oversupplied. This will further worsen the supply scenario. The demand scenario has not seen any traction despite falling prices.”

Says Amit Sharma, another oil analyst at Commtrade: “The outlook for crude oil remains bleak. With the crude oil from Iran coming into the market, prices can further ease in a month’s time. The short term looks like the WTI crude will touch $30-32 per barrel and will hover around for a while.”

However, analysts believe that every crude oil producing country seems to be concerned about cash flows and their own fiscal deficit and no one has cut production due to falling prices. Between June and October, a surplus of 2.1 million barrels has already been recorded.

Part of the weakness is also due to currency fluctuations. As crude is dollar-denominated, the dollar has strengthened. As shale gas production is more expensive, the supply of conventional oil is becoming the favourite. But till the time there is a reversal in the price trend, India will continue to reap the benefits of lower crude.


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