Crude faces rude reality, in spite of recent price gains
Brent crude price, an international benchmark, slipped below $16/bbl to a 21-year low in April. It has since recovered, with prices climbing in recent weeks. Last week, Brent went past $51/bbl, but it’s still a far cry from the heydays of 2008 when prices topped $140/bbl. Mint explores
Brent crude price, an international benchmark, slipped below $16/bbl to a 21-year low in April. It has since recovered, with prices climbing in recent weeks. Last week, Brent went past $51/bbl, but it’s still a far cry from the heydays of 2008 when prices topped $140/bbl. Mint explores
What are the current key drivers of crude?
The development and roll-out of vaccines has raised optimism that covid-19 could soon be controlled, allowing more factories to reopen and people to move about, thereby lifting demand for fuel. Big oil guzzlers such as the US, Britain, and Canada have kick-started the vaccination drive. India may also start immunization soon. Crude oil throughput in China marked a record increase in November compared with the same month a year ago, indicating a growing demand from the world’s second-largest oil consumer. Expectations that the US would soon unveil a fresh round of stimulus to bolster economy have also aided crude.
What are the near-term risks to oil market?
One of them is the pandemic itself. A fresh surge in infections has prompted governments in Europe and elsewhere to consider re-imposing curbs to halt the spread of the coronavirus that has killed as many as 1.6 million globally. This means that economies would take longer to return to growth, depressing oil demand. Also, vaccines are unlikely to be readily available for a majority of countries for months, potentially leading to people restricting their travel and businesses operating below optimum capacities. Vaccine scepticism—unwillingness to get the shots due to doubts about their safety—is another challenge.
What is Opec+ up to in the middle of price swings?
After the international benchmark prices crashed this spring, the Organization of the Petroleum Exporting Countries and its allies including Russia, cumulatively known as Opec+, agreed to cut crude output by 9.7 million barrels per day from May to support the market. Going ahead, Opec+ is likely to roll over the supply cuts when it meets in January.
What is the long-term outlook for crude oil?
Investment bank Goldman Sachs sees Brent crude at $65/bbl next year, aided by vaccines and an extension of output cuts by Opec+. However, crude oil is unlikely to go back to its gilded age of 2004-08 and a bearish long-term outlook seems irreversible. The global energy market is undergoing a structural shift as an urgency to reduce carbon footprint has prompted higher investments in renewable energy and green technologies. Also, the US could restore its nuclear pact with Iran, and allow it to add to oil oversupply.
How do crude price levels impact India?
Elevated crude prices can spell trouble for an economy like India’s, which relies on imports to meet over four-fifths of its oil requirements. India is the world’s third-largest importer of crude oil and spends billions of dollars of forex reserves annually to secure supplies. This often weakens our currency and fuels inflation, complicating macro-economic management. However, India is cutting its reliance on fossil fuels and aims to double its renewable power capacity to 175 GW by 2022 and raise it to 450 GW by 2030.
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First Published:18 Dec 2020, 03:01 PM IST
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