New Delhi: Continuing their plunge, both the Indian basket of crude oils and that of the OPEC fell around two-thirds of a US dollar on the previous trading day, having closed the weekend below $49 a barrel.
While the Indian basket, made up of 73 percent “sour” grade crude from Oman and Dubai and the balance by “sweet” grade Brent, fell to $48.17 a barrel of nearly 160 litres on Monday, the basket of 12 crude oils of the Organisation of Petroleum Exporting Countries (OPEC) closed at $45.96, compared to $46.62 last Friday.
State-run Indian Oil Corp had an Independence Day gift for consumers on Saturday, cutting prices of petrol by Rs.1.27 a litre and of diesel by Rs.1.17 — both at Delhi with corresponding reduction in other states.
It was the second time this year that oil was plunging below the $50-mark, from levels above $100 last year. Oil prices dived as crude output from the OPEC increased in July.
In July, the OPEC crude production increased by 101,000 barrels per day to average 31.51 million barrels per day, according to OPEC’s monthly oil market report last week.
Particularly since global powers signed the historic nuclear deal with Iran last month, traders have been worried that crude supply might exceed the demand.
The global oversupply is currently running at two million barrels a day, compared to 1.8 million during the first six months of the year, American investment firm Goldman Sachs said in a report earlier this month.
A fallout of lower crude prices comes from the United Arab Emirates (UAE) just visited by Prime Minister Narendra Modi, where in July the government deregulated petrol and diesel prices, resulting in an increase by 24 percent in the price of petrol to $0.58 per litre.
The importance of Modi’s visit to the UAE, the first after Indira Gandhi in 1981, can be gauged from the Gulf nation’s place in India’s energy security as the sixth largest import source of crude oil for India in 2014-15.
According to an Indian energy expert, the current fiscal situation of Gulf nations like Oman and the UAE indicate they are beginning to feel the pinch of low oil prices.
These countries have concerns about unrest within their own populations, “simmering since the so-called Arab Spring”, says Amit Bhandari, a fellow at the Mumbai-based foreign policy think-tank Gateway House.
“These countries relied on higher social spending to quieten political unrest. This cannot continue indefinitely, but if let up, can lead to another set of problems for some of the states,” Bhandari said.
Pointing out that the Gulf Cooperation Council (GCC) economies account for over 16 percent of India’s exports, Bhandari said weak GCC economies can hurt Indian exporters and spell trouble for Indian banks that lend to exporters.
“About 3.3 million expatriate Indians also work in the six GCC nations. During the 2008 economic crisis, activities such as construction came to a halt in Dubai, rendering thousands of Indian workers jobless,” he said.