The Indian basket of crude oils closed below the psychologically important $50-a-barrel mark on Monday as geopolitical tensions in the Middle East raised market concerns. Crude prices continued on their downward spiral following the OPEC cartel’s decision last month to extend output cuts. According to the latest official data, the Indian basket, comprising 73 per cent sour-grade Dubai and Oman crudes, and the balance in sweet-grade Brent, closed trade on Monday at $48.58 for a barrel of 159 litres. It had previously closed lower on Friday at $48.53.
The US West Texas Intermediate for July delivery lost $0.26 to settle at $47.40 a barrel on the New York Mercantile Exchange on Monday, while Brent crude for August delivery erased 48 cents to close at $49.47 a barrel on the London ICE Futures Exchange.
The United Arab Emirates (UAE), along with Saudi Arabia, Bahrain and Egypt cut diplomatic ties with Qatar, accusing the Gulf state of supporting and financing “terrorism” as well as of interfering in their internal affairs.
The decision of a number of Arab countries to sever diplomatic relations with gas-rich Qatar would impose a strict regional isolation on Doha, and raised concerns about a global deal reached last month to reduce oil production in order to check the fall in prices resulting from a global supply glut.
The 13-nation Organisation of Petroleum Exporting Countries (OPEC) late in May agreed in Vienna to extend for nine months the output cut agreement put in place for six months effective from January 1. The extension of the accord, which was to expire in June, would effectively lower the OPEC’s production by 1.8 million barrels per day.
Earlier last month, Saudi Arabia and Russia agreed on the need to prolong the current agreement on oil production cuts.
In early December, oil producers outside OPEC, led by Russia, agreed to reduce output by 558,000 barrels per day (bpd). This decision came in the wake of OPEC’s November 30 decision to cut output by 1.2 million bpd for six months effective from January 1.
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The OPEC basket of 13 crude oils closed trade on Monday at $47.37 a barrel. In December, it was the first time since 2001 that OPEC and some of its rivals had reached a deal to jointly reduce output to tackle the global oil glut. Oil prices had earlier fallen by more than 50 per cent in less than two years, from levels of over $120 a barrel.
While the OPEC and non-OPEC producers agreed to extend until March 2018 their ongoing oil output cuts, India has reached an understanding with the global oil cartel to establish a joint working group to serve as a forum for “producer-consumer dialogue” to address mutual concerns.
Indian Petroleum Minister Dharmendra Pradhan was present in Vienna at the time of the OPEC meeting on May 25 that agreed to extend the ouptput cuts and led the Indian side at the India-OPEC Energy Dialogue earlier that week.
“I believe the purpose of setting up this institutional dialogue is to exactly serve this, and to have a dialogue between OPEC as a producer and India as a consumer, to sensitise each other’s concerns and to better understand our perspectives,” he said at the meeting.
In the talks with OPEC Secretary General Mohammad Sanusi Barkindo, the Indian minister told OPEC to address concerns of major buyers like India at a time when there were multiple options in a situation of supply glut caused by US shale oil.
Making their fortnightly revision in fuel prices on June 1, state-run oil marketing companies in India raised the price of petrol by Rs 1.23 per litre, and of diesel by 89 paise, excluding state levies. Petrol in Delhi currently costs Rs 66.91 a litre, while diesel costs Rs 55.94.