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?)
