India oil minister Dharmendra Pradhan has said that the Organization of Petroleum Exporting Countries, OPEC, and her allies have not yet kept their promise of raising oil output by one million barrels a day, but did not blame supply scarcity for recent crude price trend.
The OPEC and allies led by Russia had agreed to raise output by one million barrels per day or about 1 per cent of global supply to keep the oil market in balance.
“According to our information, Russia and Saudi, the major two contributors in OPEC, have increased their production but some other countries are lagging,” Pradhan said. Crude oil prices gained about $10 a barrel in three months to October 3 but gave up $6 in the following 10 days. It’s trading around $80 a barrel now.
“Issue is not shortfall. Issue is now sentiment,” Pradhan said, referring to the current turmoil in the oil market. “Due to some geopolitical uncertainty in different parts of world, not only Iran, there is a sentimental issue, that is the primary challenge.”
A sharp drop in Venezuela’s output and fears that the US sanctions on Iran may curtail global supplies have driven up crude oil prices recently, and prompted Saudi Arabia to assure it would step in to meet any shortfall India might face.
Pradhan said he wasn’t worried about supply shortfall due to Iran sanctions. “We are confident from day one that there is no problem in the sourcing of crude. There is plenty availability of crude in different parts of the world,” he said.
The oil market today has a sentiment problem, not a supply problem, IHS Markit vice chairman Daniel Yergin said. “It is physically balanced but emotionally unbalanced because of the uncertainties and geopolitical issues on the table,” he said. OPEC secretary general Mohammad Sanusi Barkindo said the balance in the oil market was increasingly looking fragile. “The market is well supplied. The balance has been achieved. But this balance is looking fragile at the moment due largely to factors outside our control,” he said.
By achieving stability in the oil market OPEC has helped big consumers like India, Barkindo said. “As a major consuming country, without the stability it would be a huge challenge for them to plan, let alone manage the supply-demand dynamics in this fast-growing economy.”
OPEC has forecast that India’s oil demand would rise by 5.8 million barrels per day between 2017 and 2040, which would be about 40% of the global oil demand growth of 14.5 million barrels per day.