Oil continues to oblige Jaitley with low prices

India being dependent on imports for 85 per cent of its oil requirements, every dollar increase per barrel of crude pushes our import bill by an extra $1.37 billion, And, it adds to inflationary pressure. Naturally, Finance Minister Arun Jaitley had jitters when crude prices came close to $53 a barrel in June rallying from 12-year lows of $27 earlier in the year. He then said: "Obviously, higher crude prices are not good news for India. But, if it remains within a range, as at present, it is something that can be handled. If it goes beyond the range, then certainly it creates an adversity." Jaitley's comfort level is breached if oil goes beyond $50. No other commodity reacts to the whole range of world economic and political developments as instantaneously seen in oil prices yo-yoing. The 14-member Organization of Petroleum Exporting Countries (Opec) is riven by disagreements, particularly between Saudi Arabia, which owns as much as 18 per cent of the world's proven oil reserves, and Iran, which is keen to bring its production to the level of pre-sanction days before considering any restraint to help stabilise prices. Saudi Arabia's leadership role in Opec is challenged these days. Even then, the group that produces 40 per cent of the world's crude oil and accounts for 60 per cent of oil traded globally will continue to exercise influence on prices through its actions such as setting production targets and actual output of member countries.

Saudi Arabia's decision to pump large volumes of oil to maintain its share in world export in the commodity and, at the same time put high-cost producers, particularly the 'market disrupter' shale oil and gas groups in the Western world, in the crosshairs, have not gone down well with many Opec members. The US market influence is correspondingly up.

The US is the world's largest consumer of energy. Its average oil production last year was 9.4 million barrels per day, next only to Saudi Arabia, which continues to pump ferociously to retain market share. Besides the impact that Opec and the changing US production profile makes on oil market, traders will now have to worry about slowing Asian economies, particularly China, and the impact of Brexit on the European Union growth before they long or short their positions. If the 32 per cent rally in oil prices between January and June 8 caused concern to Jaitley, who will remain under pressure to control inflation, the 20 per cent slide in prices since the glut of crude and refined products, particularly gasoline and continuing high production has brought him relief. Oil benchmark grades the US West Texas Intermediate and Brent crude moved forward on Thursday, upon publication of a report by the US Energy Information Administration (USEIA) that the US gasoline stocks drawdown had surpassed all forecasts by a long margin. This is despite many believing the US gasoline demand this summer driving season is not overwhelming.

The US importance for oil price movement is underlined by the fact that it has a share of one for every nine barrels of oil the world uses. Why do many agencies think that oil and refined products remain in the cusp of a bear market? USEIA saying that the US gasoline demand growth for the remainder of the year will be 130,000 bpd, down from 220,000 previously, is a fodder for bear market. The world remains in surplus of crude oil and refined products. Onshore storage is full. This is leading traders to hire tankers floating on seas for storage of crude and products sold forward. What is bothering oil-producing countries and companies with falling profits is how long will they have to wait when the market will achieve a balance, that is, supply will be more or less in line with demand. At this point, the world is virtually floating on oil and refined products. This is not going to be readily worked off.

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