Even if the pandemic comes to a grinding halt, the future of oil prices remains bleak(Bloomberg)
Even if the pandemic comes to a grinding halt, the future of oil prices remains bleak(Bloomberg)

There is an oil deal. But India need not worry| HT Editorial

Production cuts have pushed up oil prices, but conditions still favour buyers
Hindustan Times | By HT Correspondent
PUBLISHED ON APR 14, 2020 06:29 PM IST

Russia, Saudi Arabia and other major oil producers have agreed to reduce oil production. Combined with other measures, the amount of oil sold in global markets will fall by nearly 15 million barrels a day. The entire price drama has led oil prices to rise about 2% a barrel, but they remain half of the $60 to $70 spread they enjoyed just a few months ago. The main consequence of the present agreement is an end to the price war between Russia and Saudi Arabia. The enormous drop in oil demand that followed the pandemic outbreak has rendered the price war meaningless. Even with Moscow and Riyadh patching up, the resulting production cuts will make up just half the drop in global demand. India, along with other major oil importers, will remain overall beneficiaries of historically low oil prices.

Even if the pandemic comes to a grinding halt, the future of oil prices remains bleak. A supply-demand mismatch will remain. Oil producers will immediately open up their spigots. The United States shale industry will come back to life. Also, Saudi-Russian rivalry will continue in some form or another to some extent — India will benefit as a consequence. Saudi Arabia has offset the oil price increase by offering Asian buyers a discount of over $4 a barrel while increasing its demand price for Europe and North America. This reflects a determination to hold and increase market share in Asia at the expense of other producers such as Russia and the United States. In the meantime, India can continue to expect low oil prices as well as a useful period of price stability in the coming several months.

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