The Consultiger Official Blog

Oil on the Boil. Staring down the barrel.
News of Brent crude oil futures hitting the USD 80/barrel this Thursday – highest since November 2014 – has created some panic in the global economy.Friday saw a dip in the per barrel rate to about USD 78.51 but experts are estimating the rate to hit USD 100 a barrel if things don’t reverse on certain fronts. Barclays Bank’s estimate of annual average crude oil price of USD 62- 73 is certainly more optimistic about the future.

Production/supply of crude oil has been affected leading to the price trend that we are witnessing.  Here’s a quick look at the triggers of this six-week alarming climb.

US withdrawing from the Iran Nuclear Deal

Iran contributes 2.4 million barrels/day (mb/d) and that’s 4% of the global demand. US’s sanctions to curb Iran’s nuclear programme is expected to deprive the international markets anywhere between 1 mb/d to 1.4 mb/d. This is expected in the next six months once the sanctions kick in.

Venezuela’s Economic & Political Instability

The political and economic woes of Venezuela – a major oil producer – are playing their part too. This country is facing it worst ever crisis of corruption, payment settlements, low wages, employee attritions. Energy sector has seen restricted productivity as has any other economic activity in Venezuela currently.

OPEC-Russia Production Curb

The OPEC, led by Saudi Arabia, and Russia have curbed production to boost price – from USD 40-50/ barrel rates last year. This agreement has contributed reduction in supply by 1.8mb/d. This ‘alliance’ contributes 40% of the global supply.  A policy review this month is expected to restore production to normal levels since the price balance has been achieved.

Other Geopolitical Discords

As per IEA’s assessment, the politically charged Saudi Arabia-Iran relationship and the army-civilian conflicts in Iraq, Syria, Yemen and Libya have added to the supply uncertainty.

Impact on India

India imports 80% of its oil demand and pays the exporters about USD 70 billion. India is the third largest consumer in the world. But, this was last year. The surging price is expected to push the bill by another USD 25 – 50 billion this year, according to the Indian Government. That’s from the cost angle. Repercussions could include Rupee sliding to 68 – 72 a dollar and price, therefore, inflation going up.

Saudi Arabia has assured Indian authorities that they (the OPEC) would ensure adequate supplies, as per the official news agency of Saudi Arabia. And that’s a hope we need to cling on to.

(Did you check the petrol price today?)

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Anand Kannan

Founder & CEO at Consultiger - with 20+ years B2B Sales, Marketing & Startup experience! Anand shares his understanding and interests in areas such as Management, Startup/Business, Manufacturing, Industry News/Trends through the blog posts. Enjoy them & share your views!!

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