As the year draws to a close, global crude oil prices appear to have remained rangebound through the year at close to the $105 per barrel-mark. There are several factors curtailing further growth in oil prices, but India has steadily witnessed a rise in under-recoveries as the rupee weakened. The quarter to December is likely to end with higher under-recoveries or sales of products at below cost by state-owned oil companies compared with the earlier three quarters of 2013.
Through 2013, crude oil prices climbed to $113 in the first quarter and then fell to $99 levels in the second quarter, while the last two quarters saw the prices move between $103 and $107 per barrel.
Rising production in the US, growing spare production capacity at OPEC and an expected slowdown in consumption on weak economic growth have all depressed oil prices. However, supply-side problems and unplanned production outages have helped oil prices stay high. Even the recent nuclear deal between Iran and six western countries did little to ease crude oil prices. Nevertheless, the impact on the Indian companies has been negative, as the under-recovery on selling fuels below cost has continued to soar.
For the October-December 2013 quarter, the domestic industry is estimated to lose at the rate of . 440 crore daily or approximately . 40,000 crore, which in the first three quarters averaged below . 32,400 crore.
The main reason for this rise in underrecovery is a sliding rupee, which averaged close to 54.8 against the dollar at the start of the year, but dropped to 62.5 in December, marking a 14% drop in value. The outlook on crude oil production is favourable in the near term as the shale revolution continues to grow in the US and countries such as Iran and Iraq are able to ramp up output. However, that doesn’t necessarily translate into a drop in oil prices ahead, particularly since a large number of old wells as well as the new deep water exploration efforts call for high prices to remain commercially viable.
The world economy is expected to grow at 3.5% in 2014 compared to just 2.9% in 2013. This has already started pushing up oil demand.
Paris-based International Energy Agency upped its estimate for global oil demand for 2013 by 130,000 barrels per day (bpd) in the last month of the year on stronger than expected demand from industrialized nations. It also noted a fourth consecutive monthly drop in OPEC production to 29.73 million barrels per day (mbpd) for November, although the group agreed in December to leave its production target unchanged at 30 mpbd.
For India, this global stability means little as the baby steps the government is taking to curtail fuel subsidies are proving futile due to a weakening rupee. The fair weather window in the global oil markets is likely to remain open in the next few years, with low oil price volatility. By 2020, India is set to become the single largest growth driver for global oil demand, when it surely won’t be able to carry on with under-recoveries like now.
Through 2013, crude oil prices climbed to $113 in the first quarter and then fell to $99 levels in the second quarter, while the last two quarters saw the prices move between $103 and $107 per barrel.
Rising production in the US, growing spare production capacity at OPEC and an expected slowdown in consumption on weak economic growth have all depressed oil prices. However, supply-side problems and unplanned production outages have helped oil prices stay high. Even the recent nuclear deal between Iran and six western countries did little to ease crude oil prices. Nevertheless, the impact on the Indian companies has been negative, as the under-recovery on selling fuels below cost has continued to soar.
For the October-December 2013 quarter, the domestic industry is estimated to lose at the rate of . 440 crore daily or approximately . 40,000 crore, which in the first three quarters averaged below . 32,400 crore.
The main reason for this rise in underrecovery is a sliding rupee, which averaged close to 54.8 against the dollar at the start of the year, but dropped to 62.5 in December, marking a 14% drop in value. The outlook on crude oil production is favourable in the near term as the shale revolution continues to grow in the US and countries such as Iran and Iraq are able to ramp up output. However, that doesn’t necessarily translate into a drop in oil prices ahead, particularly since a large number of old wells as well as the new deep water exploration efforts call for high prices to remain commercially viable.
The world economy is expected to grow at 3.5% in 2014 compared to just 2.9% in 2013. This has already started pushing up oil demand.
Paris-based International Energy Agency upped its estimate for global oil demand for 2013 by 130,000 barrels per day (bpd) in the last month of the year on stronger than expected demand from industrialized nations. It also noted a fourth consecutive monthly drop in OPEC production to 29.73 million barrels per day (mbpd) for November, although the group agreed in December to leave its production target unchanged at 30 mpbd.
For India, this global stability means little as the baby steps the government is taking to curtail fuel subsidies are proving futile due to a weakening rupee. The fair weather window in the global oil markets is likely to remain open in the next few years, with low oil price volatility. By 2020, India is set to become the single largest growth driver for global oil demand, when it surely won’t be able to carry on with under-recoveries like now.
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