Opec to set tone for oil price course today

Oil prices continued to fall on Thursday in India even as Organization of Petroleum Exporting Countries (Opec) and its allies meet in Vienna today to decide whether to boost oil production or not in view of the current supply shortage.

The development at Opec meeting will bear its impact on the oil prices in India, which has become a political hot potato for the government.

As per the oil marketing companies, the average fall in oil price on Thursday was about 11 paise for petrol and 10 paise for diesel. In Mumbai, petrol price was Rs 83.92 per litre, while diesel was sold at Rs 71.99. Similarly, in Delhi, the retail price of petrol and diesel was Rs 76.16 and Rs 67.68, respectively.

According to Anoop Bhatia, VP & sector head (corporate ratings) at ratings agency Icra, though the increase in production is the most likely outcome of the meeting, the trajectory of oil prices will depend on the extent to which the production gets raised. "Brent crude future prices have already declined from US$77-78 per barrel to US$73-74 per barrel in anticipation of rise in production levels. So if the overall supply increase is modest leading to continued relatively tight supply-demand balance, oil prices may even witness an uptick." he said.

However, several experts DNA Money spoke to said the extent of production increase is a tricky issue as all the member countries will not be able to jack up production due to various constraints.

Opec countries and allied oil producing nations, including Russia, had in 2016 decided to cut production in order to contain the falling price since 2014. However, the rise in production is needed now, as oil shortage is expected to increase by the second half of 2018, thereby affecting the global economy.

Oil prices have been falling since past few days as Opec kingpin Saudi Arabia and Russia began talking about increasing the production. Iran, which earlier was not on the same page, is said to now have gone soft on its earlier stance after some convincing by Russia.

The analyst claimed that another important outcome, post the Opec meeting, is that the Indian government may make some cuts in the excise duties, especially since the general elections are just around the corner -- in 2019. "The government will really have to do something about it. I expect the excise cut to happen in the next few days or weeks of the Opec meeting," said an analyst on the condition of anonymity.

Though the industry expects the average crude oil rate to be $70-80 in the near future, anything beyond $65-70 is considered to be a burden for India. According to a report by CARE Ratings, India, the third-largest oil producer after the US and China, imports about 80% of its oil needs. Hence, even a dollar increase in oil prices pushes up the import bill by about Rs 10,000 crore, annually.

Speaking at an industry event on Wednesday, Petroleum Minister Dharmendra Pradhan said, "It is in the interests of producers that other economies keep growing steadily and rapidly so as to ensure growing energy markets for themselves. This is the key to energy sustainability. Opec as the predominant supplier has the responsibility to maintain supply equilibrium." he said.