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Crude oil price falls to a 12 year low

14 Jan 2016
Crude oil price falls to a 12 year low
  • Crude oil's declining trend continued to touch below $30 a barrel mark, lowest since 2004.
  • While Brent crude fell to $29.96 - a 12 year low, US crude fell to $29.93 - last seen in December 2003.
  • Even Brent futures are down to below $30 mark due to the higher than expected increase in the inventory of diesel and gasoline in the US.

A free fall of prices

Fact
Information

Gobal crude oil prices including Brent (North Sea) crude oil which serves as a major benchmark for oil, have fallen from $110 a barrel in June 2014 to a 12 year low of around $30 a barrel on 13 January 2016.

Rising production creates a glut

Reasons
Rising production creates a glut
  • The fundamental reason for the decline in prices is the oversupply in the global markets, as increasing production is pumping up the stockpiles and easing prices.
  • US inventories are at an eight decade high.
  • The OPEC (Organization of the Petroleum Exporting Countries) is shying away from cutting production, for fear losing its market share.
  • The economic slowdown in China is also pulling down prices.

Factors to watch out for

14 Jan 2016
Factors to watch out for
  • The possible lifting of sanctions against Iran will add to the global glut as Iran will start pumping 500,000 barrels/day which will increase to 1 million barrels/day within 6 months.
  • Meanwhile, Standard Chartered has warned that oil prices may fall to $10/barrel triggering OPEC to call an emergency meeting to discuss cuts in production.
  • Volatility in the global economy will also affect prices.

Implications for the world

World
Implications for the world
  • Oil export dependent nations including Saudi Arabia, Russia and UAE are feeling the maximum pressure, with shrinking revenues forcing their governments to cut spending.
  • Oil companies are seeing their margins squeezed and firms including ONGC and L&T are cutting back on exploration.
  • Global consumers, on the other hand, are enjoying low prices and more disposable incomes.
  • Oil importing nations have benefited the most.

Implications for India

India
Implications for India
  • India, which imports 80% of its oil and gas requirements, will save more than ₹2 lakh crore in import bills.
  • The lower petroleum subsidies and deregulation of diesel prices has helped government to clean up its balance sheet.
  • The prices for consumers have come down by only 15% for petrol and 20% for diesel, primarily because of rupee depreciation and rise in excise duty.

Excise duty boosting revenues

Fact
Information

The Indian government is expected to garner ₹10,000 crore through the 3 excise duty hikes on petrol and diesel in the FY 2015-16 to meet its fiscal deficit.

Saudi, Russia to freeze oil output

17 Feb 2016
Saudi, Russia to freeze oil output
  • Saudi Arabia and Russia agreed to freeze oil output in the first coordinated move by the world's two largest producers.
  • Saudi Arabia's Oil Minister Ali al-Naimi said an output freeze by the world's major producers would help stabilize the market.
  • The deal was reached at a meeting in Doha along with Qatar and Venezuela.
  • Oil prices rose to $33/barrel after the deal was announced.

Iran snubs Saudi, refuses to freeze oil output

18 Feb 2016
Iran snubs Saudi, refuses to freeze oil output
  • Iran snubbed a proposal agreed to between Russia and Saudi Arabia to cap global crude output to stabilize the falling crude prices.
  • Mahdi Asali, Iran's OPEC envoy, said his country will keep increasing its crude exports until it reaches levels attained before international sanctions.
  • Venezuela has also joined Russia, Saudi Arabia and Qatar in conditionally agreeing to cap their output.

Oil prices to recover by 2017: IEA

23 Feb 2016
Oil prices to recover by 2017: IEA
  • World oil prices are unlikely to rise from current levels before 2017, according to data provided by the International Energy Agency.
  • The IEA's view is that supply will eventually be curtailed as investment cuts prompted by low prices translate into lower output.
  • It added that the demand for oil will continue to increase, but at a weaker pace amid financial market turmoil.

Saudi makes U-turn on oil-cut proposal

24 Feb 2016
Saudi makes U-turn on oil-cut proposal
  • Saudi Arabia's Petroleum Minister Ali al-Naimi said the country would not rescue the industry from low prices by cutting its crude oil production.
  • He added that the earlier prices of above $100 a barrel encouraged inefficient producers to increase output, and their output needed to be curbed first.
  • However, he said Saudi will continue to work with other oil states to stabilize production rates.