The minister said India is at a preliminary stage and one should wait to see what impact the decision will have on the markets
While India’s dwindling domestic oil and gas production is a concern — as it leads to increased dependence on imports — the decision by Opec and its allies to cut oil production by 1.2 million barrels per day starting January can potentially increase prices and adds to the country’s woes, petroleum minister Dharmendra Pradhan said on Tuesday.
“Rationing without adequate reason which may potentially create a situation of scarcity or affect market sentiments is a matter of concern for consuming nations such as India,” Pradhan said on the sidelines of KPMG’s conclave, ENRich 2018.
From January 2019 onwards, Opec members will reduce production by 800,000 barrels a day and non-Opec members, including Russia, will cut output by 400,000 barrels a day from the output levels of October. In the current financial year, India — the third-largest consumer of crude oil — has imported 4.6 million barrels of crude oil per day.
However, analysts believe that the oil cut will have limited impact. While ratings agency Moody’s believes oil prices will settle into $50-70 range through 2020 albeit with volatility, CARE Ratings in a report noted that given the current oil market scenario, prices of crude oil are not to rise more than $65 a barrel. Brent crude oil futures gained around 39 cents a barrel to trade at $60.36 on Tuesday at the time of writing the report.
Pradhan, however, added that we are at a preliminary stage and one should wait to see what impact the decision will have on the markets. “Let us wait and watch. The sanctions on Iran has made the producing countries a little jittery and looking at the geopolitical situation Opec has taken a decision. Definitely decision for low oil production or any rationing of oil production should not be one sided and should take into account the emerging requirements of consuming countries,” he added.
According to Moody’s, the recent volatility reflects concerns about a weakening global economy, higher Saudi Arabian and Russian production, demand destruction tied to the strong US dollar and tariffs, mixed signals on Iran sanctions, and financial speculation. “The announced production cuts by Opec and Russia will contribute to more balanced global supply and demand, and help to stabilise oil prices,” a report released by Moody’s on Tuesday noted.
Pradhan is hopeful that with the reforms initiated by the current government and $300 billion slated to be invested in the Indian hydrocarbons sector in the next 10 years across the value chain, India’s production will be able to keep pace with its rising demand.
“We have given impetus to acquisition and development of overseas equity oil and gas assets. Our recent efforts to jointly develop oil and gas projects in Russia’s Arctic shelf and Pechora and Okhotsk Seas during Russian President Vladimir Putin’s visit is a testimony to this,” Pradhan said, adding that moving towards a revenue-sharing model and opening all sedimentary basins of country for exploration are transformational steps.