India urges OPEC to phase out production cuts; bats for reasonable crude prices

Dharmendra Pradhan.

At a time when the Brent crude oil prices are hovering around $75 a barrel hurting consumer countries, India's petroleum minister Dharmendra Pradhan has urged the Organization of the Petroleum Exporting Countries (OPEC) and allies -- collectively known as OPEC+ -- to phase out production cuts and also emphasised that crude prices should remain within a reasonable band.

Owing to the spike in international crude prices, retail prices of petrol and diesel are scaling new highs in India, with petrol price crossing Rs 100-a-litre-mark in several cities, including Mumbai. In April OPEC+ had decided to return at least 2.1 million barrels per day to the market between May and July. India's concerns were raised by the minister at a high-level consultation meeting with OPEC Secretary General Mohammed Sanusi Barkindo.

"I took the opportunity to express India’s deep concern on increasing crude oil prices and its impact on consumers as well as on smart economic recovery. I emphasised that high crude prices is adding significant inflationary pressure on India," Pradhan tweeted after the interaction. He added that the rise in crude prices and resulting fuel retail price in India is affecting smart economic recovery in the country.

At one point on June 24, Brent crude prices were seen at $74.75 a barrel, going up from a historic low of $19 a barrel in April 2020. Since the share of taxes were increased during the time of this lower crude regime by the Centre and the states, its benefits were not passed on to customers on fuel retail front.

"Both sides discussed recent oil market developments, trends in oil demand recoveries, economic growth forecasts and overcoming energy challenges among other issues of mutual interest. Pradhan reiterated his request of phasing out production cuts and also emphasised that crude prices should remain within a reasonable band, which will be in the collective interests of both consumers and producers and will encourage a consumption-led recovery," said a government statement.

Pradhan conveyed his appreciation to OPEC, and to key partner countries—Saudi Arabia and the UAE, for their support to India during the second wave of the Covid pandemic, especially with supplies of medicines, ISO containers, liquid medical oxygen and vital petroleum products. He expressed happiness on OPEC’s analysis which shows that India will be the fastest-growing emerging market economy in 2021. India has been expanding technical cooperation, exchange of experts and other collaborations with OPEC in recent years.

In order to push the crude prices up amid lower demand, OPEC and allies, including Russia, had cut oil production by 9.7 million barrels per day (bpd) in May 2020. To further boost prices, Saudi Arabia decided to cut the output by 1 million barrels per day through February and March this year. This cut is considered as the major catalyst to the spike in crude oil prices, coupled with the recovery in demand.

Being the world's third-biggest oil importer and consumer, India had been asking OPEC to ease output and help economic recovery, ever since the global crude demand started recovering.