Why Prevailing Oil Situation is a Boon for Inida?

By Shruti

The largest oil producers in the world, i.e., Russia, Saudi Arabia and the US are facing a problem of lack of demand. There is not enough immediate purchasers for the major oil producers who have not stopped their oil production since September 2014. So they are only stocking their production.

The recent Qatar episode has worsened the situation more because it is world’s largest LNG supplier, and lately, with the help of Iran it has increased production. The Ukraine episode was an accelerator for the whole scenario. Things started changing drastically after this. The United States could sense the vision and boldness of Russian President Vladimir Putin. Saudi Arabia was also very upset by the episode.

The United States, in a planned way with the help of the European countries, put too many economic sanctions on oil export. It has surpassed the production of Saudi Arabia, who used to be the largest producer of oil in the world, through fracking(the process of injecting liquid at high pressure into subterranean rocks, boreholes, etc. so as to force open existing fissures and extract oil or gas). Thus in order to resurrect its lost position, Saudi Arabia has refused to cut its production in spite of falling prices. Iran has also returned to the market with full capacity of production which is supposed to increase by 1 million per day. US has also lifted the sanction on Iran.

However, In a bid to push prices up, OPEC and key non-cartel members -- including Russia, but not the United States -- agreed coordinated output cuts in December to push up prices. The cuts were envisaged for six months and extended for another three. But so far, they have had hardly any effect -- with oil prices still hovering at 45 dollars a barrel. Renewable energy is also seeing unprecedented growth -- encouraged by some traditional oil majors like BP -- while companies are under pressure to reduce emissions in line with the Paris Agreement on climate change.

Thus all these factors combined are a positive indicator for Indian economy which is looking for a big leap as the oil prices does not seem to rise for at least three to four years now.