Q. We are living in very interesting times globally, especially from the oil market perspective. There is turbulence in the Middle East, tussle between buyers and suppliers, and OPEC is cutting supply. We are keen to understand which way should India look. We also need to factor in the trade war going on between the US and China.
A: There is a big change in global oil markets. This is driven by the US. A few years ago, the US was the largest oil importer, and after the shale revolution there, the production increased so much that it started exporting. It will soon catch up with Saudi Arabia and Russia in oil exports. In terms of production, it is already there. It is good news for Americans, along with countries like India. The countries which are dependent on oil prices have benefited. But Venezuela, a major oil producer, has had to cut down production by half in the last two years. Iran’s production has gone down. In Libya, there is a civil war going on. Had these things occurred a few years back, oil prices would have jumped.
The American oil is bringing stability, not only in prices, but also in supplies. Oil from the US is keeping the price around $60/barrel, acting as a cushion for now. Then there is a structural change. Earlier, oil prices were determined in Vienna (OPEC headquarters) by all the established producers. Not now. It’s good news for importers because when the price of oil goes up, in India the deficit goes up.
After the Iran sanctions, the situation in the Strait of Hormuz is tense. The tensions over tankers and threats of retaliation by the US have increased prices of insurance of vehicles travelling from this strait. How do you think India – whose oil supplies come from this region – should react?
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