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Where are global crude oil prices headed?

Though India is yet to make its stand on Iran oil official, Indian refiners have reportedly already started cutting down on imports.

Where are global oil prices headed?

Yesterday, news that Libya would reopen four export terminals in its eastern oil production heartland - and hence start ramping up oil supply - sent the price of Brent crude crashing nearly 7 per cent. The war-torn country boasting the largest proven reserves of oil in Africa was forced to suspend exports from these ports after a showdown between its rival authorities, which had dampened its oil output considerably.

But the relief did not last long. The price of Brent, the international benchmark, is again climbing up. In fact, according to Reuters, it has already gained 1.8 per cent to as of this morning, coming closer to $75 a barrel.

Meanwhile, although the Organization of the Petroleum Exporting Countries (OPEC) and its allies agreed to finally boost production by a million barrels daily - thereby bringing down prices flirting with the $80 a barrel mark - the cartel's president, UAE's energy minister Suhail al-Mazrouei recently told Bloomberg that they have no intention of "overdoing" things to offset the various supply disruptions around the world. That does not bode well for oil prices.

So the largest fuel refiner-cum-retailer in the world's fastest-growing oil buyer is now voicing concerns about waning demand in the near future. We are talking about Indian Oil Corp. Ltd (IOCL). "Demand cannot be seen in isolation to prices, especially for a price sensitive market like India," Sanjiv Singh, chairman of IOCL told the news agency, adding, "You may not see an impact on demand in the short term, but in the long term, definitely it will have implications."

According to Singh, if oil prices continue rising at the pace they've been gaining in the past month and a half, the South Asia nation's consumers will likely see alternatives such as electric vehicles and gas as more cost effective, replacing 1 million barrels of the country's daily oil use by 2025.

He added that expectations about India's oil consumption growing to 10 million barrels a day by 2040 is based on the assumption that prices will be at $83 a barrel by 2025 and $113 by 2040. "If instead of $83, prices reach $100 by 2025, then other forms of energy will become more competitive," he explained, adding, "We have told them [OPEC], kindly don't think growth will come only because everyone is projecting it. It is heavily linked with prices."

While Singh is voicing more medium term concerns, India has more immediate concerns to tackle. Like taking a call on Iran oil, choosing between risking US sanctions and risking disrupted supplies if it pay heed to the US diktat. The Trump administration brought back sanctions against Iran after pulling out the US from the Iran nuclear deal in May. The US has told India and other countries to cut oil imports from the Gulf nation to "zero" by November 4 or face sanctions. But the oil shipments from Iran, India's third largest oil supplier, add up to a whopping figure - India imported 18.4 million tonnes of crude oil from the country between April 2017 and January 2018.

Things on this front were looking a tad uncomfortable on Tuesday, when Iran's Deputy Ambassador and Charge d'Affaires Massoud Rezvanian Rahaghi cautioned New Delhi that it will stand to lose "special privileges" if it cuts import of Iranian oil. "... If India were to replace Iran with countries like Saudi Arabia, Russia, Iraq, the US and others for the 10 per cent of its oil demand then it may have to revert to dollar-denominated imports which mean higher CAD (Current Account Deficit) and deprivation of all other privileges Iran has offered to India," Rahaghi said at a seminar on 'emerging challenges and opportunities in the global diplomacy and its impact on bilateral ties with India' in the capital.

However, the Iranian embassy was quick to issue a clarification yesterday, reportedly saying that Rahaghi had been misquoted. "Iran understands the difficulties of India in dealing with the unstable energy market and it has done and will do its best to ensure security of oil supply to India through offering various flexibility measures which facilitates our bilateral trade in particular Indian export to Iran," the embassy said in a statement, adding that it was for India to choose its energy partners, taking into account various factors like geopolitical considerations and reliability of the oil suppliers. "Iran has always been a reliable energy partner for India and others, seeking a balanced oil market and rational prices of oil which ensure the interests of both countries as consumer and supplier," the statement further read.

Though India is yet to make its stand on Iran oil official, Indian refiners have reportedly already started cutting down on imports. As per data from industry and shipping sources, India's monthly oil imports from Iran declined to 592,800 barrels per day (bpd) in June, down 16 percent from the previous month.

The global and domestic uncertainty is already causing a rally in petrol prices in the country. Prices have steadily been going up in the past week after staying flat the previous week. The war of words between Iran and the US is likely to make things worse. Iranian officials recently said that they might block the Strait of Hormuz if their oil exports are blocked. According to experts, the strategic waterway sees 35 per cent of all seaborne oil exports pass through it daily. So if Iran follows through on its threat - even at the risk of hurting its own export trade - oil at $100 a barrel might happen a whole lot sooner than anticipated.

With agency inputs

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