OPEC+ output cut fuelling oil prices

Paris: The International Energy Agency (IEA) on Tuesday termed the decision of OPEC+ to cut oil production as ‘risky for the global economy, saying it may push up already high prices, leading to higher import bills for nations like India. Global oil markets were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge, said Fatih Birol, head of the Paris-based energy watchdog.

Talking to reporters after a bilateral meeting with India's Commerce and Industry Minister Piyush Goyal here, he said: “The cut of the additional production would mean that we have all the reasons to believe that there could be an upward pressure on the prices. At this juncture of time when the global economy is still very fragile and many emerging countries have difficulties with economic performance, I found this decision risky for the global economy.” Asked if oil prices could go past $100 per barrel again, he said, “I think we are all the day, but $85 now, and looking at the second half of this year, I have reasons to believe that it can go even higher at current levels.”

Higher oil prices will not just translate into inflationary pressure on other commodities, but will also lead to a larger import bill for nations like India, which are dependent on overseas supplies to meet their requirements.

“India is an energy important country, oil important country, a majority of the oil consumed in India is important, such a move could increase India's oil import bill and as such a burden on the Indian economy and Indian consumers,” Birol said.

Goyal is here to meet his counterpart and French CEOs to promote trade and investments between the two countries. India is the world's third-largest oil-importing and consuming nation. It meets 85 per cent of oil needs through imports. It spent $118 billion on oil imports in the first 11 months of the 2022-23 fiscal. Birol said India's economy is strong and continues to be stronger.

“We expect the Indian economy will soon be the third largest economy of the world and the growing economy needs. We do revise our numbers all the time, but I expect that the Indian economy will still be strong this year, one of the strongest in the world. And as such, we require strong oil and electricity demand,” he said.

On Russia's invasion of Ukraine, he said the war has led to a big push for clean energy solutions. “In addition to that, we also see that as a result of this war, Russia was a major world's number one natural gas exporter. More and more countries are producing and exporting gas and we expect in the next two to three years, there will be a float of LNG coming to markets and as such, would put downward pressure on the prices and ease gas supply security concerns." Asked about the impact of sanctions on Russia, he said the objective of reducing Russian oil revenue has been achieved. "Our numbers show that in one year of time since the 24th of February, when the war started, the Russian oil and gas export revenues declined, dropping by 60 per cent. If we consider that the oil and gas export revenues are a very important input for the Russian budget, it is a major challenge for the Russian economy." Russian oil is being sold at a discount to international benchmarks because some Western nations have stopped buying it and their insurance companies are no longer providing cover for ships carrying such oil. India is one of the countries, which utilised the opportunity to buy discount oil to cut its import bill. The IEA head said India was doing this in a transparent way and within the international rules and regulations. "And India is profiting by...importing of crude at a lower discounted price than the others. This is definitely a legitimate step."