Minister of Petroleum and Natural Gas and Steel Dharmendra Pradhan has called for a win-win formula that would safeguard interests of global energy suppliers and consumers during the G-20 oil ministers’ virtual conference to stabilise oil markets that have been rocked by the COVID-19 pandemic.
During his intervention at the video conference hosted by Saudi Arabia, the rotating head of the G-20, Mr. Pradhan reassured the grouping that India will continue to remain a global energy demand centre. With cheap oil flooding the market and stretching energy storage capacity, Mr. Pradhan stressed New Delhi will continue to fill up its strategic petroleum reserves. India currently holds its strategic oil reserves in Vishakhapatnam, Mangaluru and Padur, storing 5.33 million tonnes of crude, which could last for around nine days. According to an earlier agency report, India will spend about $ 670 million to buy oil at around the $30 a barrel, for its strategic reserves, drawn from Saudi Arabia and the United Arab Emirates. Deliveries will start around April-May.
Referring to the ongoing energy market fluctuations, Mr. Pradhan spotlighted that oil prices should remain affordable so that a “consumption-led demand recovery” could help stabilise the oil markets, an official statement said. The minister also lauded efforts by the OPEC+ countries, which also include Russia and others, as an extension of the cartel, to balance the supply-side factors, which is imperative for long-term sustainability.
The statement pointed out that a task force would be established to advise the G20 Energy Ministers on the next steps on oil market stability.
Apart from the OPEC cartel, the conference included the United States—the world’s largest oil producer—as well as Canada and Brazil. Apart from India, the major oil-consuming nations in the G-20 include China, Japan and South Korea.
Friday’s meeting added another layer to Thursday’s video conference among OPEC+ oil-producing countries, which had, with the exception of Mexico, agreed to slash production by an unprecedented 10 million barrels per day (bpd), in order to shore up prices that had majorly collapsed due to demand destruction caused by the pandemic.
The steep drop in energy demand following the pandemic has hurt Indian oil refiners as well. Indian Oil Corporation (IOC), the refining heavyweight, and Mangalore Refineries and Petrochemicals Ltd. (MRPL) have served force majeur notices to their Middle Eastern crude suppliers, citing the Coronavirus epidemic — a Black Swan event. Force Majeur notices are in-built contracts, which relieve companies from making payments due to unforeseen calamities such as wars and natural disasters.
The Saudi daily Arab News is reporting that apart from 10 million barrels per day by OPEC + running for two months starting in May, Thursday’s meeting proposed reductions of 8 million barrels from June until the end of the year; followed by 6 million barrels reduction until the spring of 2022. On Friday, the website oiprice.com is reporting that the United States is ready to help Mexico reach its production cut quota as part of the tentative OPEC+ deal.
Analysts point out that Friday’s meeting was expected to take into account that oil prices dropped on Thursday, despite the promise of the hefty supply cut. The price of Brent crude, which has been on the rise most of last week ahead of the OPEC+ meeting, fell by nearly 5 percent to a shade over $32 a barrel.
Earlier, Reuters said that a note by Goldman Sachs on Thursday stressed that even deep cuts would be insufficient to raise prices because of a massive decline in global demand on account of COVID-19. It anticipated that oil prices could fall back to $20 per barrel or even lower.
“Ultimately, the size of the demand shock is simply too large for a coordinated supply cut,” Goldman said in its note. Prices below $40 a barrel will hurt the U.S. shale oil industry because of its high recovery cost.