Continuing crude production cuts by the Opec+ group could worsen inflationary pressures, possibly leading to recession, Indian oil minister Hardeep Singh Puri has warned.
"As it is due to the pandemic, a lot of additional liquidity went into the markets," Puri told state-owned broadcaster DD News last week. "So you already have inflationary pressures. You already have such inflation that if you have high oil prices in addition to that, it will move to the ‘Big R'", he said, referring to a recession.
Eight members of the Opec+ alliance had in April agreed to cut crude production by 1.157mn b/d from May. The countries include Saudi Arabia, Iraq, Kuwait, UAE, Algeria, Gabon, Oman and Kazakhstan. Their actual output cut was 1.08mn b/d in May, falling 80,000 b/d short of the pledge. Opec+ had previously decided on a 2mn b/d cut to its overall output ceiling until the end of 2023 — which it agreed to in October 2022.
But the Opec+ production cuts have not led to a rise in crude prices, likely because of a lower-than-expected recovery in demand in some large economies, as well as more oil supplies from countries such as the US, Brazil and Guyana, Puri said. Ice Brent crude futures have remained below $77/bl in June and even dropped below $74/bl earlier this month. Prices rose to $79.31/bl on 1 May, when the Opec+ cut took effect, but subsequently weakened to $76.61/bl on 16 June. The Ice Brent front-month August settlement price further eased on 19 June to $76.25/bl at 08:30 GMT.
It remains to be seen how oil prices react in July after Saudi Arabia's additional 1mn b/d production cut takes effect, although state-controlled Saudi Aramco will continue to supply Asia-Pacific buyers with their requested volumes of July-loading crude.
But a sharp decline in crude oil prices is also not desirable for consuming countries, as it discourages investment, Puri added. India has been trying to attract more foreign investment in its upstream sector to boost oil and gas output, in a move aimed at helping the country cut its import reliance.
Mideast Gulf producers have raised official selling prices for July-loading crude, which should lead to an increase in India's crude import prices. Iran is the latest country to raise official formula prices for July-loading crude exports, after Saudi Arabia pledged an additional 1mn b/d production cut from July. All producers in the region with the exception of Qatar have now raised selling prices for July.
India depends heavily on imports for its crude demand, with Russia recently overtaking the Middle East as the country's largest supplier. Imports met 87pc of Indian crude demand in the April 2022-March 2023 fiscal year, despite a government push to increase domestic exploration and production through various means including seeking interest from foreign oil and gas firms. Indian crude demand was 5.14mn b/d in 2022 and is likely to rise to 5.38mn b/d in 2023, according to the Opec Monthly Oil Market Report for June.
