India to gain from US’ rising presence in global oil trade
New Delhi: Crude oil production in the US, which is predicted to overtake Saudi Arabia and Russia in 2018, is likely to favour India’s public finances, as the development would limit the traditional oil exporters’ ability to prop up prices by cutting production.
“Rapid US growth and gains in Canada and Brazil will drive up non-Opec supply by 1.7 million barrels per day in 2018, versus last year’s 0.7 million barrels per day increase. US crude supply will push past 10 million barrels per day, overtaking Saudi Arabia and rivalling Russia,” IEA (International Energy Agency) said in its monthly oil report published last Friday. IEA’s latest update estimates global oil demand at 99.1 million barrels a day in 2018.
The prospects of rising oil supply from new sources and growing share of renewable energy in many economies come as relief to policy makers in Union and state governments, which has come under pressure to cut taxes on autofuel as oil price rises in world markets.
As the supply cut by the Organization of the Petroleum Exporting Countries (Opec) and Russia led to a rally in global oil price, Indian basket of crude, which cost $46.56 a barrel in June 2017, rose to touch $77.08 as on Sunday, according to information available from Petroleum Planning and Analysis Cell, an arm of oil ministry.
US emerging as a leading oil supplier will also improve New Delhi’s negotiating power with conventional producers. Oil minister Dharmendra Pradhan had in October told Opec secretary general Sanusi Mohammad Barkindo that New Delhi has other buying options. The minister urged the 14-member cartel of producing nations that “responsible pricing” by the producers’ grouping was important for India’s socioeconomic development. Opec accounts for 86% of crude oil, 75% of gas and 95% of liquefied petroleum gas (LPG) that India imports.
Indian refiners started sourcing oil from US exporters last year. New Delhi is also reworking its import strategy by stepping up the share of short-term contracts whenever market is favourable and exploring long-term supply deals at discounted price.
Experts said the recent bullish trend in oil price is enabling many US producers to ramp up production, which will help boost supplies in global oil trade and stabilize prices. “Indian refineries have started sourcing crude from US suppliers because of the price advantage, a trend which is likely to get more pronounced going forward,” said K. Ravichandran, senior vice president and group head-corporate ratings at ICRA Ltd. Ravichandran said that Indian refiners, however, will have to hedge the inventory risk while sourcing from US, which takes about a month to reach India, compared to shipments from Middle East, which takes about a week. Price of oil could fluctuate during the transit and refiners have to address the risks arising from it.
IEA had in its world energy outlook of 2017 had identified rapid adoption and falling costs of clean energy technologies, deployment of roof-top solar panels, the shift to a more services-oriented economy and a cleaner energy mix in China and the rising oil and gas supplies from the US as key trends shaping the energy market.
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