Why India Doesn’t Need To Worry About Oil Prices In Near Future

Why India Doesn’t Need To Worry About Oil Prices In Near Future

Oil has fallen out of favour in recent years, with prices dropping by more than half since mid-2014. From about $115 per barrel in mid-2014, Brent crude oil prices fell to a 12-year low of close to $28 by January 2016, before settling around $50 per barrel. While there is room for further upside, India as a major oil importer need not be too worried as prices are unlikely to rise too sharply, given the substantial global oversupply. To understand the dynamics of oil prices, one needs to examine the causes of the price rout of the past few years. The biggest driver has been the surge in the US oil production as a result of the so-called ‘shale revolution’, whereby improved productivity and increased efficiency in extracting oil from shale rock formations boosted US’ recoverable oil reserves. As a result, the US crude oil output almost doubled from around 5 million barrels per day (mbpd) in 2008 to a record 9.6 mbpd in 2015, turning the country into one of the world’s top-three oil producers alongside Russia and Saudi Arabia, and reducing its reliance on oil imports. Although global demand has been rising steadily, mainly from major Asian consumers such as China and India, this was not sufficient to absorb the rising US output, leading to a worldwide glut. By the time the other major oil producers, particularly members of the oil cartel OPEC came together to agree on curtailing output in 2016 to offset the rising US production, world oil inventories climbed to record highs. Alongside the US shale revolution, there are other structural factors that are likely to limit significant price gains. For one, there are increasing efforts by major economies to reduce their reliance on oil. Read More…

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Credit By: Financial Express

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