As global oil prices continued to tumble owing to a supply glut fuelled by shale gas production in the U.S. and differences between oil producing countries over cutting production to stop the slide, oil companies in India cautioned against over-optimism. Brent crude recorded a new 47-month low on Wednesday, dipping to $83.37 a barrel but recovered later to above $85 a barrel, owing to a weak dollar.
In India, oil companies said any respite to consumers, owing to the global oil prices drop, may be temporary. “There is room for cautious optimism...but we should not get too excited because oil prices are very volatile,” Siddhartha Mukherjee, spokesperson for IOC told The Hindu .Oil saw its biggest daily fall in more than three years on Tuesday when the Paris-based International Energy Agency (IEA) slashed its forecast for oil demand to 92.4 million barrels per day for this year, 200,000 fewer than its previous forecast.
The production glut, say analysts, has been fuelled by the United States, where a surge in fracking is driving an oil boom. The output of oil in the US at 8.7 million barrels a day, is the highest in decades.
The Organisation of Petroleum Exporting Countries, which produces 40 per cent of the world’s crude oil, has been unwilling to cut crude supplies.
Can Saudis win the price war?
Saudi Arabia has been controversially willing to cut oil prices to maintain its market share, rather than cede any market share to rival Opec members or the U.S. On Tuesday, Iran said it could live with lower oil prices, joining the chorus of similar signals from core OPEC members Saudi Arabia and Kuwait.
Analysts said the moves signify a willingness to bring prices lower in an effort to curtail supply growth from non-OPEC producers, such as the United States and Russia.
The IEA has pointed out that oil prices must fall below $80 a barrel for Saudi Arabia to win the price war with American shale producers.
A letter from the Saudi Prince al-Waleed bin Talal, a billionaire Saudi investor, to Saudi oil minister Ali al-Naimi, posted on Twitter and published first in the Financial Times, was sharply critical of the moves by Saudi Arabia to cut prices. Referring to it as a “catastrophe that cannot go unmentioned,” he said 90 per cent of the country’s revenues came from oil.
Oil sector sources in India said that lower crude oil prices would give a “breathing space’’ to the country’s overall economic scenario and help in improving trade balances. It would also help in bringing down subsidy bills.
The OMCs are understood to be making around Rs. 2 to 3 per litre profit on diesel and as it is not a de-regulated commodity unlike petrol, it is not incumbent upon the government or the OMCs to revise the prices according to the movement of crude oil prices in international markets, sources said. Diesel prices have a direct bearing on prices of essential commodities as it is the preferred fuel for the transport sector.
(With inputs from Reuters)
