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Energy: Cartel cuts production - Views on News from Equitymaster
 
 
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  • Mar 19, 2001

    Energy: Cartel cuts production

    The Organisation of Petroleum exporting Countries (OPEC) in its meeting on March 17 has decided to cut oil production by 1 m barrels per day (mbd) from April 1, '01. The cartel had earlier cut production by 1.5 mbd in January '01.

    Oil prices, which had scaled new 10-year highs of $35 / barrel in December '00 are down by almost 40% over the last three months to $25 / barrel. The cartel, fearing a similar melt down in prices to $10 / barrel in 1998, has cut supply to maintain prices at current levels.

    FY01 MMTPA m Barrels
    Oil imports 72.0 530.6
    Domestic production 32.0 235.8
    Total consumption 104.0 766.5
    Crude prices (Rs / barrel)   1,302.0
    Crude import bill (Rs m)   690,893.3
    Expected hike in bill (Rs m)   24,674.8
    Oil as % of imports   26.5%

    The cut is expected to result in crude prices firming up. Consequently, this will adversely impact the oil import bill and widen the trade and current account deficit. The oil import bill in the current fiscal is expected to increase by 52%.

    As the Northern Hemisphere moves into the summer months the consumption of fuel is expected to decrease. Further, with the U.S and Japanese economies faltering oil demand is expected to register a slow down. Therefore, we may see another round of cuts by the OPEC in order to prevent a sharp decline in international oil prices. OPEC had hiked production by 3.2 mbd in calendar year 2000 to harness the galloping oil prices. It now has cut back on production by 2.5 mbd year to date.

     

     

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