By Dharmendra Pradhan
The steep rise in international oil prices over the last few months is pinching the government and the people alike. This has not only affected the finances of people and the government, it has also affected the exchange rate of the rupee against international currencies. The current geopolitical landscape continues to pose a challenge in keeping prices within an affordable range.
We have come across statements of global leaders appealing to oil-producing countries to reduce oil prices for long-term benefits that will accrue to the global economy. That hasn’t helped. While OPEC countries remain the main balancer of prices, there are several other factors that affect global crude rates.
We have been raising the issue of the Asian premium, loud and clear, at every relevant international forum. At the ministerial meeting of the International Energy Forum on April 11, PM Narendra Modi had said, “We need to move to responsible pricing, which balances the interests of both the producer and consumer.”
In a recent meeting with global oil experts and CEOs, which was also attended by the oil ministers of Saudi Arabia and the UAE, Modi noted that the oil market was producer-driven and oil-producing countries determined both the quantity and prices.
Over the last many years, OPEC has played a key role in India’s quest for secure sources of supplies as the overall trade with OPEC nations is more than 80% in crude and 75% in gas of total import. Our companies pay huge sums on this account each year. To diversify our crude sourcing and get a better price for crude oil, we started importing from the US since last year. Now, it has become a regular feature for our PSUs to import from the US.
In view of India’s high import dependence for oil and gas, in the first phase of the Strategic Petroleum Reserve (SPR) programme, the government has built SPR facilities with a capacity of 5.3 million metric tonnes. The total reserve of SPR has an estimated capacity of 9.5 days of India’s crude oil requirement. Under the second phase, we will build two more facilities. A refiners’ forum of private and public sector refineries in India
has been formed to negotiate and strengthen as a block for better bargaining with producer countries.
Recently, the International Energy Agency acknowledged that India will be the fastest growing energy consumer – and market – till 2040. The forecast also holds a promise for renewable energy, as fast-declining costs turn solar and wind energy into the main drivers of growth in the power sector. Reducing dependence on fossil fuel is one of the prime focus of our government’s policies and initiatives.
Another interesting aspect in pricing of petrol and diesel in India that is less known is that international prices of petrol and diesel (not the price of crude oil) determine the price of petrol and diesel for Indian consumers. Many times, we have come across situations when the price of crude oil remains at a modest range while the cost of petrol or diesel is at a higher range pushing up the retail price in India.
India remains the loudest and most reasonable voice representing the consuming nations. We have championed the cause of reasonable price of crude oil as something, which is in the long-term interest of the oil-producing countries. The PM has led this debate in his dialogue with the global community.
There has been consensus that rise in oil prices was not a byproduct of shortages in supply of oil or demand supply imbalance. Rather, a more plausible argument is that it is a balanced market but the sentiments are imbalanced. In simple terms, geopolitical uncertainties and speculation about the macro-economic situation in large economies are having a crucial influence on prices rather than the actual production of crude oil. Our views arguing for long-term stability of oil industry by keeping oil prices at reasonable level has gained acceptance by major players in the international oil circuit. We are optimistic their future decisions will factor in concerns of consuming countries as championed by us.
(The writer is Union petroleum minister)