Oil prices soar to a four-month high, prompting questions about the energy market’s trajectory. Amidst supply cuts and shifting dynamics, what lies ahead for India?
Our previous discussion about crude oil was around a surprising move by Saudi Arabia in July 2023. They took the unexpected step of reducing their daily oil production by one million barrels daily.
Since then, crude oil prices have been soaring, reaching their highest point of the past four months. But what’s driving this strong surge in crude oil prices?
Let’s find out.
What’s Happening?
In the world of crude oil, exciting things have been happening since the start of August 2023. As of the 9th of August 2023, Brent crude oil is traded at $86.41 per barrel.
Looking back a bit, since 28th June 2023, its price has steadily increased without any breaks.
If we look at the returns offered by Brent crude, in July 2023, it offered a return of 13.43%, and this winning streak continued into August with another 1.9% increase till 9th August 2023. The surprise is that we are experiencing this hike amid global pressures like the US getting a lower rating from Fitch.
When the downgrade news came to light on 2nd August 2023, Dow Futures fell by 0.37%. On the same day, Sensex dipped over 1% because of weak signals from the global market.
Even though Brent crude oil also got simmered due to weak global cues, it managed to bounce back and reach its highest point in four months.
So, the big question is: Who’s behind all this pushing up of crude oil prices?
Reason Behind the Surge of Crude Oil Prices
1. Saudi Arabia and Russia’s Oil Production Cut
Oil prices are influenced by two main factors: demand and supply. When there is excess supply compared to demand, prices usually decrease. That is why both Saudi Arabia and Russia are taking measures to push prices upward by decreasing the amount of oil they produce. In July 2023, Saudi Arabia reduced its daily oil production by a million barrels, and they are planning to keep this cut until September 2023.
Following suit, Russia has also reduced its output by 30,000 barrels per day. Additionally, both countries have hinted that they might extend these production cuts in September and October.
These deliberate supply cuts are elevating oil prices.
2. Aramco’s Oil Price Hike for Asia
Saudi Aramco, the world’s largest oil producer, revealed that the official selling price for Arab light crude had been raised by 30 cents a barrel for Asia. This brings the total price to $3.50 per barrel, calculated over the average prices of Oman and Dubai, as reported by Arab News.
Also, this records the third consecutive month of such price hikes, with the changes set to take effect from September 2023. The decision shows that despite the already high fuel prices, oil demand is stronger.
3. Decline in US Inventories
The US EIA’s petroleum status report stated that for the week ending 28th July 2023, there had been a record-breaking drop in US oil inventories, with a remarkable reduction of 17 million barrels from the previous week.
Additionally, the amount of oil produced in the United States has decreased for two months in a row. And the number of rigs actively drilling for oil has also seen a dip. There are only 525 active rigs, the lowest number since March 2022. This is a sign that oil production isn’t very strong right now in the US, according to CNBC TV 18.
How Could Rising Oil Prices Impact India?
It is important to know that India gets most of its oil from Russia. So, if Russia produces less oil, it also directly affects India. But they do have options.
As Financial Express reports, Serena Huang, the head of APAC analysis at Vortexa, believes that India could either maintain its current import levels despite reduced Russian exports or enhance its import strategy by offering more appealing bids to suppliers, potentially involving higher prices.
So, directly or indirectly, the rise in oil prices and the output cut will put pressure on India’s pockets.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
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