Will the Organization of the Petroleum Exporting Countries (OPEC) and its allies agree to ease the voluntary production cuts they kicked off in January 2017 and finally increase output? And by how much? These two questions have been endlessly speculated upon in the past few weeks and the answers are finally close at hand. The upcoming OPEC/non-OPEC Joint Ministerial Monitoring Committee (JMMC) meeting in Vienna on June 22 will play a major role in determining the trajectory of fuel prices here on.
According to Mint, with OPEC accounting for around 40 per cent of global production, any decision will have a wide-ranging impact on energy markets. It must be noted that OPEC's 13 (now 14) member countries and 11 (now 10) non-OPEC oil producing countries had started to withhold output in January 2017 to reduce excessive global stockpiles that had depressed oil prices since 2014.
They had decided on voluntary production adjustments of around 1.8 million barrels per day, which caused global oil prices to jump from around $30 per barrel in 2016 to over $80 per barrel in May. In response, domestic fuel prices had spiralled to an all-time high. Global oil prices - and prices at home, eventually - started coming down only after Saudi Arabia, the de-facto OPEC leader, and Russia recently signalled that they are considering boosting oil supply.
To be sure, the supply squeeze alone had not caused the oil price rally. US President Donald Trump's decision to re-impose sanctions on Iran also played a role - the price of the benchmark Brent crude had reportedly jumped around 4 per cent since he announced abandoning the landmark UN-backed deal.
Also, according to the International Energy Agency (IEA), when sanctions were imposed in 2012, Iran's exports fell by about 1.2 million b/d. "It is too soon to say what will happen this time, but we should examine whether other producers could step in to ensure an orderly flow of oil to the market and offset a disruption to Iranian exports," it added.
Making matters worse, Venezuela, which boasts the world's largest oil reserves of over 300 billion barrels, is now on a six-year-long oil production decline. S&P Global Platts claims that its production of 1.41 million b/d in April was a whopping 40 per cent drop in two years, and experts estimate May production to have dipped to 1.36 million b/d.
So a major agenda in the upcoming Vienna meeting is sure to be the dipping supplies from Iran and Venezuela. "To make up for the losses, we estimate that Middle East OPEC countries could increase production in fairly short order by about 1.1 mb/d and there could be more output from Russia on top of the increase already built into our 2019 non-OPEC supply numbers [1.7 mb/d]," said the IEA in its latest Oil Market Report.
"However, even if the Iran/Venezuela supply gap is plugged, the market will be finely balanced next year, and vulnerable to prices rising higher in the event of further disruption. It is possible that the very small number of countries with spare capacity beyond what can be activated quickly will have to go the extra mile," it added.
Given that India is the world's third largest oil importer, it will certainly be hoping for some good news this week. As per Petroleum Planning & Analysis Cell data, the average cost of the Indian basket of crude has gone up to $75.31 per barrel in May 2018, up from $69.30 in the previous month. The rising oil imports have already widened the country's trade deficit in May.
Oil Minister Dharmendra Pradhan, who is scheduled to participate in the OPEC international seminar in Vienna this week, recently said that India will be pitching for "responsible" crude pricing out there.
"There was a time when oil producing countries were playing a lead role. We do not want crude at $25 per barrel. But oil price should not be out of reach. Why should the price go beyond $55 to 60 per barrel? India is consistent on that. Today's oil prices are pinching us and creating problem for us. We will raise this issue in OPEC conference," he told reporters at a CII conference yesterday.
"Whenever we have met OPEC members, we have told them that crude oil prices should be controlled, reasonable, responsible and should meet demand. We will raise this issue there," he added.
His visit comes at a crucial juncture, when the global crude oil prices are at the highest since the peak of 2014. According to a recent statement by the oil ministry, India's engagement with OPEC is important as India sources about 82 per cent of crude oil, 75 per cent of natural gas and 97 per cent of LPG from OPEC member countries.
With PTI inputs