On Tuesday, February 10, two apparently unrelated events took place in two different parts of the world. In Washington US secretary of state Madeleine Albright told the Senate foreign relations committee that though there was time for Iraqi president Saddam Hussein to comply with the Security Council resolutions, "the lower half of the hour glass (was) rapidly filling with sand." Even as the world read war signals into that statement and apprehensions of an US air strike on Iraq grew, something else was happening in distant Dubai.Teased by increased supplies by Opec, the Dubai crude price dropped to $12.71 per barrel, from roughly $18 to a barrel some months ago. The Dubai price had actually hovered around $12.5 a barrel since February 3 and was beginning to show signs of a recovery when it hit $12.8 a barrel on February 6.
At home, the newly liberalised oil industry watched in dismay. "The scenario is difficult," said an oil industry bigwig mildly, pointing out that lower international prices of crudewould not benefit the home industry. Domestic crude producers, who now get an administered price of Rs 1,991 a tonne (Rs 261.28 a barrel) for the oil they produce, are due for their first instalment of progressive parity with international prices from April 1.
The downtrend in Dubai crude prices, aided partly by the "food for oil" quota of $2 billion granted to Iraq by the United Nations, actually began on December 1 after Opec members agreed on a 10 per cent hike in oil output to 27 million barrels a day. The price of Dubai crude, then hovering at roughly $17 per barrel, climbed steadily down to the February 10 levels. The price of North Sea Brent, used as a benchmark worldwide, tumbled too, from roughly $18 a barrel to $ 14.5 a barrel on Tuesday. Oman crude prices fell steadily from $17.4 a barrel on December 1, last year, to $13 a barrel on Tuesday.
By mid-January, the Centre for Global Energy Studies, founded by Saudi oil minister Ahmad Yamani, began to predict an oil price crash, similar to the onein 1986. A flooded market had then witnessed crude prices drop to $7 a barrel. The Centre predicted that crude prices would slip to $10 a barrel this year. Economists at the Global Energy Studies centre in London said the Gulf price crash would not affect premium oil producers in the US, but predicted that some of the "little oil companies would have to shut down hundreds of small-volume, low-margin stripper wells."
At home the public sector Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) will have to pare down their dreams of getting a more market-driven price for their crude. Domestic producers will get 75 per cent of the weighted average f.o.b. (freight on board) price of imported crude. Even at $12 (Rs 468) a barrel, the Dubai crude price is somewhat of an advantage for ONGC and OIL, but should the downtrend continue, liberalisation could prove a slightly bitter pill.
A day after Albright blew on the battle bugle, chanting, "We have the authority to do this, the responsibility to dothis, and the means and the will," oil industry watchers were not counting losses, but a massive crisis in supply.
Experts at home dismissed possibilities of a recurrence of the oil crisis in the early part of this decade, when too Iraq was under attack. The oil price tumble, they pointed out, had been prompted not only by an increase in production, but also by a drop in demand.
A mild winter in Europe and the Asian currency crisis had created an oil choked market. The International Energy Agency predicted early last month that the hardening of the dollar versus the Malaysian ringgitt, the Indonesian rupiah and the Korean won would trim the Asian demand for crude by 2.3 million barrels per day to 9.39 million barrels per day.
The slackening of demand in the world's fastest growing energy market was blamed for the 25 per cent slump in global oil prices in the last three months. It was scarcely a coincidence then that the weakening rupee should bring in its wake a truncated growth in the demand for oil athome. The home demand for petroleum products, which was growing at a whopping 10 per cent till the middle of last year, suddenly dropped to 6.6 per cent a month after oil price controls were partly removed in September and the rupee went for a volatile dive.
The slackening demand has begun to show on the oil import bill, that is expected to be $1.5 billion lower this year at $8.5 billion. Industry watchers pointed out that a substantial rise in crude output at home would also help stave off a crisis, should the Gulf producers cutback on output.
Both ONGC and OIL have stepped up their production by at least three per cent this year. An additional 0.2 million tonnes of crude will be produced from joint ventures like the one with Command Petroleum, Hardy Oil and Tata Petrodyne at the Ravva field and the Enron and Essar Oil partnerships at the Mukta-Panna fields. Last year ONGC and OIL produced 33.43 million tonnes of crude and this year, they are expected to produce a little more. Canalising agency IndianOil had imported another 33.15 million tonnes of crude and by March-end this year, is expected to ship in a little less. It had also imported 22 million tonnes of petroleum products, which too seem to be in less demand of late.
"There is definitely (an oil) surplus," said an industry insider, pointing out that should the worst come to the Gulf, India still had the option of sourcing its crude supplies from Russia, Latin America or the North Sea.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
