A gradual return of 2 million barrels per day to global oil market will help India—the world’s third-largest oil importer
New Delhi: The Organization of the Petroleum Exporting Countries (Opec)-plus grouping on late Thursday decided to increase the crude oil production by 500,000 barrels per day from January.
Starting next month, the Opec-plus arrangement comprising of 23 countries including Russia and allies will increase production, resulting in a reduced production cut to 7.2 million barrels per day (mb/d) from the current levels of 7.7 mb/d. The decision to gradually return the 2 mb/d to the global market is expected to help India—the world’s third-largest oil importer.
“In light of the current oil market fundamentals and the outlook for 2021, the Meeting agreed to reconfirm the existing commitment under the DoC (Declaration of Cooperation) decision from 12 April 2020, then amended in June and September 2020, to gradually return 2 mb/d, given consideration to market conditions," Opec said in a late-night statement after the12th Opec and non-Opec ministerial meeting.
The Opec + decision holds significance for India, as Opec accounts for around 40% of global production and 83% of India’s crude oil imports. A low international crude oil price regime has helped India, with India buying crude oil at an average price of $19 per barrel to fill its strategic crude oil reserves, and in the process saved $685.11 million.
“Beginning in January 2021, DoC participating countries decided to voluntary adjust production by 0.5 mb/d from 7.7 mb/d to 7.2 mb/d," the statement said and added, “Furthermore, DoC participating counties agreed to hold monthly OPEC and non-OPEC ministerial meetings starting January 2021 to assess market conditions and decide on further production adjustments for the following month, with further monthly adjustments being no more than 0.5 mb/d."
The extension of the production cut compact by the Opec-plus arrangement comprising of Russia and allies comes at a time of the coronavirus pandemic that has impacted global energy demand. However, with the announcement of several vaccines being successful, there has been a bounce in international crude oil prices.
This also comes at a time when India is trying to buffer consumers from the fluctuations in global prices as it is facing recession. The pace of contraction in the Indian economy slowed in September quarter to 7.5% from a historic high of 23.9% contraction in June quarter.
“It noted that renewed lockdowns, due to more stringent COVID-19 containment measures, continue to impact the global economy and oil demand recovery, with prevailing uncertainties over the winter months," the statement added.
While Brent was trading at $48.75 per barrel, the West Texas Intermediate was at $45.69 a barrel at the time of writing this story. Every dollar per barrel drop in crude prices reduces India’s oil import bill by Rs10,700 crore on an annualized basis.
The cost of the Indian basket of crude, which comprises Oman, Dubai and Brent crude, averaged $56.43 and $69.88 per barrel in FY18 and FY19, respectively. It was $69.88 per barrel in FY 20. With the spread of the pandemic, the price fell to $19.90 in April, $30.60 in May, $40.63 in June, $43.35 in July, $44.19 a barrel in August and $41.35 a barrel in September respectively, according to data from the Petroleum Planning and Analysis Cell. The price was $47.29 a barrel on 2 December.
These low prices in April and May came in the backdrop of extremely low global crude oil prices, with Brent crude hitting a 21-year low, and US oil futures slumping into negative for the first time in history. The prices since then have recovered.
India has been calling for a global consensus on “responsible pricing," and is expected to drive the global energy demand growth. India's energy consumption is projected to grow at 3% annually up to 2040. It is also pitching for better commercial terms for crude oil imports, including a cut in the official selling price, extension of the credit period from the existing 30 days to 90 days from bill of lading, freight discount and open credit, based on the credit worthiness of Indian state-run refineries.
“For too long, the world has seen crude prices on a roller-coaster. We need to move towards responsible pricing. We have to work towards transparent and flexible markets for both oil and gas," Prime Minister Narendra Modi said in October.
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