Business Standard

Oil drops again below $50, India gains

Image

IANS New Delhi

In a repeat of the plunge at the year's beginning, global crude oil prices dropped below the psychological $50-mark per barrel, from around $115 last year -- this time in the wake of the Iran nuclear deal last month.

The basket of 12 crude oils of the Organisation of Petroleum Exporting Countries (OPEC) closed at $48.40 a barrel of nearly 160 litres on the previous trading day on Monday.

The Indian basket of crude oil fell on Monday to $50.63 a barrel.

The International Energy Agency has said that Iran has at least 17 million barrels of crude oil stored and ready to be shipped.

 

The markets expected OPEC's crude production to hit a high in July. In June, OPEC production increased by 283,000 barrels per day to 31.38 million barrels per day, a three-year high, according to OPEC monthly oil market report on Monday.

US oil companies added more oil rigs this week despite the collapse in crude prices, marking the second straight week of an up-tick in the rig count.

The West Texas intermediate for September delivery moved down $1.95 to settle at $45.17 a barrel on the New York Mercantile Exchange. Brent crude for September delivery decreased $2.69 to close at $49.52 a barrel on the London ICE Future Exchange.

On Tuesday, the Reserve Bank of India maintained its key interest rates, with Governor Raghuram Rajan saying the fall in oil prices has been very beneficial for the country.

One of the reasons for the strength of the Indian rupee is the falling price of oil which has brought down the current account deficit, he said.

"A significant mitigating influence on inflation is the sharp fall in crude prices since June and the likelihood of this softness persisting in view of the global supply glut and expanding production by Iran," Mumbai-based think-tank Gateway House said in a report.

Stable crude oil prices in the international markets would help India manage its macro-economy well, chief economic advisor Arvind Subramanian has said.

Citing the recent twin developments of US firm ConocoPhillips halting talks about on developing a shale gas block in China and the country cutting its 2020 shale gas production target to a third of the original number, an energy expert said both these indicate that OPEC's refusal to cut oil production has finally achieved its goal of discouraging development of potential oil and gas resources.

"By keeping production high, they (OPEC) can push down prices, which will drive away new investments in oil and gas production, and eventually keep future oil and gas production down in the long term," said Amit Bhandari, fellow at Gateway House.

"It is a continuation of a trend that has already started with global hydrocarbon majors such as ExxonMobil, BP, Shell, ConocoPhillips, Gazprom, among others, cutting down spending on exploration," he said.

Though low prices in the short-term are welcome, there is a flip side too for oil producers like Cairn India, which reported a 24 percent drop in net profit for the first quarter ended June, caused by the fall in crude prices.

"Oil and gas fields across the world, and the companies which own them, have lost value and can be bought cheap because of low oil prices," Bhandari said.

"Indian companies need to actively pursue this path and focus on acquiring oil fields and oil companies abroad in order to secure a stable and predictable supply of oil in the medium- and long-term as well," he added.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Aug 04 2015 | 7:20 PM IST

Explore News