Ahead of a meeting of oil producers' cartel OPEC, India on Tuesday said the current oil prices are "very challenging" and rates need to be a "little bit sober" lest they impact a consumption-led recovery of the global economy. Oil Minister Dharmendra Pradhan, who last week again urged OPEC to phase out its production cuts, said India is a price-sensitive market and it will buy oil wherever it gets competitive rates.
The rebound in international oil prices from lows hit last month on the back of demand recovery has led to a spike in petrol and diesel retail prices in India. Fuel rates are at record highs across the country and petrol has crossed Rs 100 a litre mark in about a dozen states and union territories, while diesel is being sold at over Rs 100 a litre in Rajasthan and Odisha.
"Today's price is a very challenging one," Pradhan said at BNEF Summit. "I am persuading my producer friends" for a reasonable price of oil. He said he had a very good discussion with OPEC Secretary-General Mohammed Barkindo last week.
"OPEC meeting is supposed to be there in the next few days, and I hope the price will be a little bit sober, that is our expectation," he said. OPEC, Russia and several other allies in a production accord are set to meet on July 1 to decide on output quotas for August and possibly beyond. Expectations are high that the alliance may agree to raise production by 500,000 to 700,000 barrels per day, short of the expected deficit between global oil demand and supply.
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International oil prices have risen past $75 per barrel in recent days — highest since April 2019 — on consumption recovery as well as supplies being short of demand. High oil prices are adding to inflationary pressures. High oil prices are adding to inflationary pressures.
Inflation is a challenge to growth, Pradhan said. He has many times called on OPEC to price oil at reasonable levels that support growth and stop propping up oil prices with its output cuts.
In March, tensions escalated when Saudi Arabia's energy minister Prince Abdulaziz bin Salman responded to Pradhan's repeated pleas by saying India should tap into its reserves of crude that it bought cheaply in 2020 during the market crash. Days later, Pradhan termed the statement as an "undiplomatic response from a friendly nation".
Thereafter, his ministry asked refiners to look at sources outside of the Middle East for buying oil. India is the world's third-largest consumer of crude and OPEC nations such as Saudi Arabia have traditionally been its principal oil source. But OPEC and its allies, called OPEC+, ignoring its call for ease supply curbs had led to the world's third-biggest oil importer tap newer sources to diversify its crude oil imports.
As a result, OPEC's share in India's oil imports has dropped to about 60 per cent in May from 74 per cent in the previous month. The two sides have somewhat patched up relations, with Saudi Arabia and the UAE supplying critical medicine, oxygen and equipment to help India battle its second wave of coronavirus infections.
At the BNEF Summit, he was asked if India would use the oil it had bought a rock bottom prices in April/May last year. "There are two things — one strategic (oil reserves) totalling 9.5 days of consumption (of the country). Yes, taking advantage (of low oil prices last year) we filled up our (underground) cavern," he said, adding oil was also stored on floating storages, refinery tankages and pipelines.
"We have utilised that (oil stored in refineries, floating storages and pipelines) in the last few months," he added. Strategic reserves are for use in emergencies such as supply disruption or price shocks.
When asked if India will buy from Iran if sanctions are lifted, Pradhan said India is a price-sensitive market. "Wherever I will get competitive oil price, I will opt for that," he emphasised. The minister further said energy demand in India is expected to return to pre-COVID levels by the end of 2021.
When lockdown was first imposed last year to curb spread of coronavirus, fuel demand was "destroyed in a big way," he said, adding consumption appeared to have returned to near normalcy in September and October 2020. But the outbreak of the second wave of COVID-19 infections in April and May has again led to "severe demand destruction," he said. "But in last three weeks of June, there is a sign of demand resurgence because of easing of lockdown restrictions by states and a gradual pick up in economic momentum." But the outbreak of the second wave of COVID-19 infections in April and May has again led to "severe demand destruction," he said.Stating that challenges remain, he said with economic activity gaining momentum, fuel demand will return to normal by end of 2021.