A meeting between OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC countries majorly Russia is expected to bring fresh relief for major oil-importing economies.
OPEC which is holding its biannual meeting in Vienna, Austria on Friday morning will hold a joint OPEC and Non-OPEC meeting with petroleum exporting countries, majorly Russia, since it had joined a deal to cut production in 2016.
Ever since cuts were systematically implemented, a major supply glut has been arrested. Prices have risen, but producers such as Iran have threatened to reduce their supply owing to the new sanctions. A sudden price increase has caused a concern among major importers in the global economy. Although the OPEC has maintained that it was keen on easing the prices, there have been reports that a good number of members want the supply to be at a the current low-level to maintain higher prices.
For instance, Saudi Arabia and Russia are keen to raise supplies, but Iran seems to be resisting the rise in supplies.
The ensuing confusion has created additional trade tensions. During the early morning trade, international oil prices rose by over 1% across Asian bourses over uncertainty whether OPEC could manage to agree on the supplies.
A Reuters report quoted an ANZ bank economist as saying that OPEC might slightly increase output to make up for some unplanned supply disruptions from places such as Venezuela, Angola and Iran. But even with the increase, ANZ opined that the market could remain in deficit through the second half of the year, and therefore prices may remain well supported.
Besides a meeting in Vienna, oil economies of the US may see prices easing over uncertainty on the potential Chinese tariffs on US crude imports. The escalating trade dispute may disrupt US' selling of its crude. A tariff may prompt China to seek importing from other destinations.
Energy consultancy FGE was quoted in a report as saying that China's import demand was over 300,000 barrels per day, and any trade barrier would disrupt US Gulf Coast supplies.
VK Sharma, Head for Market Strategy at HDFC Bank explains that this could just be rhetoric rather than a strategy. "Trade war worries between China and USA is clouding the sentiment in global markets. The worry is that if tariffs continue to rise, it could slow down the global growth and investor confidence. However, the saving grace is that many issues like this either don’t end up happening, or they don’t happen in the worst-case scenario. A lot of what we’ve seen is just rhetoric," he explains.
The decision at the OPEC meeting on Friday will be closely monitored by India. The daily price revision has managed to bring some respite, but petrol at over Rs 80 per litre in metropolitan markets has already hurt the pockets of the common man. The rising crude price along with an increase in vegetables and minerals was reasoned as the factor contributing to a 14 month high Wholesale price inflation.
According to data presented in the official press-note from the ministry, the index for the minerals group rose the highest at 13.7%, crude and petroleum at 7.3%, mineral oils by 4.1%, tobacco products by 2.5%. Read more here.
Although the Indian financial regulator, Reserve Bank of India, does not decide upon the lending rates based on the WPI, higher crude rates have been a cause of worry, since it forced the regulator to increase the lending rates.
Oil Minister Dharmendra Pradhan in a file-photo.
Dharmendra Pradhan, the Union Oil minister has been quoted several times saying that the government had a holistic strategy to bring down fuel prices. But besides implementing GST, or waiting for the OPEC to push supplies, there doesn't seem to be a major game-changing strategy.
On Wednesday, another Reuters report quoted Pradhan who was speaking at a Seminar at Vienna, "Political conditions, sometimes internal and sometimes external, result in 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 further added, "The 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."
Pradhan’s statement cuts hits an emotional chord, considering the rising crude rates have eaten into the common man's pockets, and also pressurised India's oil import bill by nearly 50% to $115 billion during May. This has widened the country’s Current Account Deficit (CAD) and additional stress on the fiscal situation.
India, the world's third largest importer of crude, and the second largest from Iran after China, has to await for a gentle push in crude supplies, a decision left upon the OPEC cartel. Speculators believe that supplies would improve, but not from Iran directly.
On Friday, petrol rates have beens slashed. Petrol is cheaper by 14 paise at Rs 76.02, while Diesel prices have been left unchanged at Rs 67.78 per litre in the National Capital Region. The meeting highlights are expected to be announced on Saturday, and we are hopeful, like the billions of Indians, large industries and even the government in expecting international crude prices to be eased.