India's dire warning of its demand shrinking by one million barrels per day if oil prices continued their upward march was one of the factors that pushed oil cartel OPEC to raise production to cool prices. At the meeting of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna last week, Oil Minister Dharmendra Pradhan and his team of officials presented the consumer side to the world's most powerful oil producers.
Pradhan and Indian Oil Corp (IOC) chairman Sanjiv Singh presented an informal paper on the impact of high prices on demand, projecting a scenario of about million barrels per day of demand shrinking by 2025 if oil prices continued to advance towards USD 100 per barrel mark, top sources with direct knowledge of the development said.
The outcome of the OPEC meeting was an additional 1 million barrels per day on top of 32-33 million barrels per day of its current production, a decision that was attributed to consumers from the US to India and China expressing anxiety over rising prices.
India is world's third largest and fastest growing oil consumer. It consumed 204.9 million tonnes of 4 million barrels of oil per day, in 2017-18 fiscal year. Its demand had grown by 5.3 per cent in the fiscal year to March 31, 2018, the highest in major economies of the world.
The International Energy Agency (IEA) had in projection of India's oil demand reaching 458 million tonnes by 2040 had factored in an oil price of USD 83 per barrel by 2025 and USD 130 by 2040, sources said adding India is a price sensitive market and if the oil prices had continued to rise at the rate they were rising in May, the demand would certainly have been impacted.
While the Indian economy would have continued to expand, the need for energy for supporting that would have come from other fossil fuels like LPG and natural gas whose pricing are largely delinked from crude oil, they said.
Both natural gas and LPG could replace auto fuels as well as industrial fuel produced from crude oil, they said, adding renewable energy sources like solar and wind energy are not even being considered for arriving at the shrinkage in demand numbers.
Sources claimed OPEC leadership was taken aback by the numbers thrown by the Indian contingent and they retorted that the one million barrels per day shrinkage in demand was too high a number. Nevertheless, consumer's voice led OPEC to boost output, they said.
Oil prices fell today after the OPEC decision taken at Vienna meeting. While Brent crude futures dropped 1.7 per cent to USD 74.25 per barrel, US West Texas Intermediate (WTI) crude futures were down 0.2 per cent at USD 68.42 a barrel.
Earlier in the day, Pradhan said the OPEC decision was a recognition of consumer's voice. "Within one-and-a-half years of OPEC decision to cut output by 1.8 million barrels per day, they have agreed to restore more than half of the reduction," he said.
He expressed happiness at the OPEC decision. "We are happy because for the first time OPEC has taken cognizance of the market for a stability (in price)," Pradhan told reporters here. "How price will emerge is up to demand and supply fundamentals but as a consuming country, India is happy that they looked into our expectations."
While OPEC agreed to raise production by 1 million barrels per day, in reality about 600,000 barrels a day of oil would only be added to the market, about 0.5 per cent of global supply, because several members are unable to raise output.
Pradhan, who spoke at an OPEC seminar in Vienna ahead of the meeting of oil ministers of the association on Friday, said there should be production assurance by OPEC countries.
"They have decided on 1 million barrels per day of more production, certainly that is a positive sign for consuming country like India," he said.
At the OPEC Seminar on June 20, Pradhan made a case for OPEC to move to responsible pricing of oil and gas, saying the present rates are far detached from market fundamentals.
"Political conditions, sometimes internal and sometimes external, resulting in a reduced output of some countries. We expect from OPEC and its members a commitment to step in (and) more than fill the gap to ensure sustainable prices," he had said.
Stating that current high oil prices dent the economic development of many countries, he had stated that already fragile world economic growth will be at threat if oil prices persist at these levels.
"My fear is – this will lead to energy poverty in many parts of the world," he had said.
Pradhan said the world has for too long seen prices on a roller coaster and interventions which are detached from market fundamentals.
"It is high time to move to responsible pricing, one that balances the interests of both the producer and consumer. We also need to move to transparent and flexible markets for both oil and gas," he had said. "We often see global trade practices in the field of oil and gas which are not contributing to energy access and affordability and become a hindrance to sustainability. Price of oil and gas have become subject to vagaries of geopolitics," he had added.
The minister had said that globally crude prices have gone beyond the threshold which can be sustained by the world. "These prices are creating stress throughout global economy, as it is giving pain to us in India.