Oil war triggered by Saudi price cuts to benefit India immensely
Business & Economy

Oil war triggered by Saudi price cuts to benefit India immensely

IANS

New Delhi, March 9, 2020

Large energy consumers, including India and China, may head for an oil bonanza with the world's largest oil producer Saudi Arabia looking to ramp up production to well above 10 million barrels from next month in a clear declaration of war against the collapse of OPEC-plus that includes major oil producers such as Russia.

Oil cartel OPEC along with other large oil producers were looking at extending and expanding the ongoing production cuts beyond March to counter low oil prices of sluggish demand conditions in an oversupplied market.

The Saudis who account for almost a fifth of India's oil imports on Saturday started an all-out price war by slashing prices for its crude by the most in more than 30 years. State energy giant Saudi Aramco is offering heavy discounts on crude in markets such as Asia, Europe and the US to entice refiners to use Saudi crude.

For India, these discounts mean unprecedented gains as the country imports nearly 83 per cent of its oil requirements. Each fall in dollar in price of crude reduces the import bill by almost Rs 3,000 crore. A discount of about 10 per cent on crude price of just about $ 45 a barrel now would help the country save more than $ 2 billion.

In a tweet Kotak Mahindra Bank managing director and CEO Uday Kotak said: "Amidst turbulence and the virus, some good news: oil at $45/ barrel. Recent $20 drop saves India $30 billion per annum. Also global interest rates have collapsed making money cheap. Let's leverage these for policy to boost growth."

This would, however, depend on current prices holding up for the rest of the year. Analysts said that oil may remain under pressure for a long time and may range between $ 50-60 a barrel in FY 21.

A cut by the Saudis is expected to be followed by other oil producers looking to protect their market. Analysts said this could trigger a price war much to India's gain.

For oil producers already facing demand squeeze in the wake of coronavirus spread, the Saudi price cut could only add to their woes, putting the entire oil market into chaos. Saudi Arabia has already indicated it could raise production much higher if needed, even going to a record 12 million barrels a day.

Aramco's unprecedented pricing move came just hours after the talks between the Organization of Petroleum Exporting Countries and its allies ended in dramatic failure. The breakup of the alliance effectively ends the cooperation between Saudi Arabia and Russia that has underpinned oil prices since 2016.

This also resulted in a crash of stock markets across the Gulf. Saudi Arabia's stock exchange, the Tadawul, was down 7.7% in afternoon trading. The Abu Dhabi index fell 5.8%, Dubai's Financial Market General Index was down 7.47%.

Shares of Saudi state oil giant Aramco traded below their original IPO price for the first time Sunday, at 30.90 riyals ($8.24) in Riyadh compared to the listing price of 32 riyals in December. That's down 6.36% on the day.

IANS

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