Why crude oil prices are unlikely to hit $100 per barrel. Top BPCL executive explains

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Updated: October 2, 2018 4:20:31 AM

With crude touching $83.30 per bbl and other factors such as supply side squeeze, forecasting will continue in the near term.

R Ramachandran, Director of Refineries, Bharat Petroleum

With crude touching $83.30 per bbl and other factors such as supply side squeeze, forecasting will continue in the near term. The Indian basket of crude is likely to operate in the price range of $80-85 per barrel and is unlikely to cross the $100 per bbl level, said R Ramachandran, director, refineries of Bharat Petroleum (BPCL), during an interview with Vikas Srivastava. He further adds that India and China’s position with respect to the US sanctions against Iran would also have a significant bearing on the prices going ahead. Excerpts:

With OPEC declining to increase the supply of crude, do you think crude can touch $100 per barrel in near future?
Crude prices are expected to be high in the near future, though I have my doubts on whether it will touch $100 per bbl as it would create a strong negative impact on the emerging markets and developed economies as well. A high oil price may be good for crude oil producers, but not necessarily sustainable due to its larger impact on the world economy. As far as the refineries are concerned, their profitability would sustain if the margins are higher. However, an increase in raw material cost and product prices will impact the consumer and the market. If the marketplace is seeing high prices, there is a possibility that the demand may start reducing. Hence, I believe the oil-producing countries would need to manage a reasonable price suitable for all the stakeholders.

What role will sanctions on Iran play in pricing of crude? Will India continue to import crude from the country?
Iran, in recent times, has been one of the important suppliers of India. While Indian refineries are flexible enough to handle the impact of sanctions of Iran, in the long term one would have to identify other sources as a substitute. As far as BPCL is concerned, we have not imported any crude from Iran in September. The future course will be determined by the government’s decisions and directions in relation to the US-Iran sanctions.

Has there been any drop in demand since the oil prices touched Rs 90 per litre in parts of the country?
We have not seen any significant reduction in demand or growth in the last quarter as the monsoon season is historically a low-demand one. Going forward, during the festival seasons in India which is traditionally a high-growth period, we would be able to assess if there is any impact of petrol prices on demand.

What has been the direct impact of higher crude price on India?
Everyone does not have an elastic purse to handle high crude oil and product prices. Especially, in economies where per capita consumption of transportation fuel is very high, the impact of higher crude oil price will be very significant. In an economy like India where the dependency on diesel is significant in agriculture and other businesses, it is necessary to safeguard against the cascading effect on the demand growth rate and reduction in manufacturing and increased inflationary pressures.

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