Mint Primer: Why this week’s Opec meeting matters for India
The world is waiting to see whether the Opec will decide to increase crude oil production at its meeting in Vienna on Friday
The world is waiting to see whether the Organization of the Petroleum Exporting Countries (Opec) will decide to increase crude oil production at its meeting in Vienna on Friday. Mint looks at what is at stake for India and the world.
Why is this meeting so important?
The meeting comes against the backdrop of Opec looking to strengthen its cooperation with Russia on production control. With Opec accounting for around 40% of global production, any decision will have a wide-ranging impact on energy markets. The meeting is also significant as it comes in the backdrop of a supply cut by Opec and Russia, which triggered a rally in global crude oil prices. Prices have fallen since then. Also, there are growing fears of a trade war escalation, which may impact global growth.
How do international crude oil prices affect India?
Retail prices of petrol and diesel in India track global prices of these fuels, not crude, but they are broadly linked to crude oil price trends. Crude oil prices impact India’s oil import bill and trade deficit. Lower oil prices had dramatically improved India’s terms of trade in 2015-16. A rally in global oil prices had pushed up the average cost of the Indian basket of crude to $75.31 per barrel in May 2018, according to data from the Petroleum Planning & Analysis Cell.
How did the Indian government respond to high prices?
The government has so far refused to roll back its decision to link domestic and international fuel prices and has said that it is working toward a ‘long-term solution’.
Why is this meeting particularly important for India?
India’s energy needs are mainly met through imports, and Opec accounts for around 83% of the country’s total crude oil imports. Oil minister Dharmendra Pradhan, who is scheduled to participate in the 7th Opec seminar, has maintained that India is a price-sensitive customer and will seek reasonable rates as its energy demand grows. He has also said market fundamentals do not support such high prices.
Is Opec alone responsible for the oil market uncertainty?
There have been both internal and external pressures on the grouping. There has been a rally in oil prices due to factors such as US President Donald Trump pulling his country out of the 2015 nuclear accord with Iran, and Opec and Russia cutting supplies. In addition, Venezuela’s oil output has collapsed to the lowest since the 1950s and geopolitical tensions have also played a part.