Oil minister Puri urges OPEC to be pragmatic, make global crude prices affordable

For long, New Delhi has been advocating for responsible pricing of oil that balances the interests of consumers as well as producers. Puri has also been cautioning that unreasonably high oil prices could jeopardise the post-pandemic recovery and lead to an economic slowdown in various parts of the world, which could in turn hit global oil demand.

“During the discussions, the minister highlighted that due to the production cuts carried out by OPEC and OPEC+ countries from August 2022 onwards, effectively around 5% of the total global oil availability has been removed from the market, causing crude oil price to rise around 34% in just (the) last 3 months. These cuts have been made despite growing energy demand. Brent Crude oil prices jumped from around $72/bbl in June to around $97/bbl in September 2023, placing severe strains on the capacities of most oil importing consuming countries,” the petroleum ministry said in the statement.

“Minister wondered whether the global economy is again going to witness a situation similar to the economic turmoil of 2008 which had become a self-fulfilling prophecy. Brent prices had initially soared from $93.60/bbl in January 2008 to $ 134.3/bbl in July 2008, fueling an accelerated global economic meltdown, leading eventually to demand destruction and very low oil prices,” it added.

Oil prices have been volatile for some time now, but the general direction over the past three months has been upward. The rise in prices is due to a combination of some inter-dependent factors, which include production cuts by major oil producing countries, signs of improved macroeconomic conditions and easing of inflation in major oil consumers like the US, and global oil demand touching record highs with expectations of further demand expansion.

The latest round of uptick in oil prices came after major oil producers Saudi Arabia and Russia surprised the world last month by announcing an extension of their voluntary supply cuts–totalling 1.3 million barrels per day (bpd)–till the end of 2023. The two oil-rich countries are leading the efforts to prop up crude oil prices by reducing supply, even as demand remains robust.

The additional voluntary production cuts by Riyadh and Moscow are over and above the OPEC+ cuts totalling 3.66 million bpd, which shall be in place till the end of 2024. OPEC+ is a larger group of major oil producing nations and includes members of OPEC along with Russia and a few other producers. OPEC+ produces around 40 per cent of the world’s crude oil, with Saudi Arabia as the top producer and Russia in the second spot.

“In the interest of global good, (the) minister advocated balancing global energy markets by ensuring that crude oil prices do not outstrip the paying ability of the consuming countries. Minister urged OPEC to recognise the gravity of the current economic situation and urged the (OPEC) Secretary General to use his office to imbue a sense of pragmatism, balance and affordability in the oil markets,” the petroleum ministry said.