Well, speaking exclusively to Financial Express Online Toril Bosoni -Head of the Oil Markets Division at the International Energy Agency says higher oil prices can’t be good news for the economy.
This coupled with the repeated attacks on vessels in the Red Sea have disrupted, though not halted, oil supply flows.
Moreover higher oil prices and renewed inflation risk as a result will keep interest rates higher for longer.
World oil supply growth outlookOil supply has been tight, how do you see demand- supply dynamics panning out in the current situation?
India’s oil demand growth is expected to be the fastest in the world, surpassing that of China before 2030.
It is perhaps all calm across West Asia at the moment but the Israeli Govt is working on ways to retaliate against Iran and their Prime Minister Netanyahu has promised a strong response against Iran. What are the implications for a country like India which is a net importer of oil? Well, speaking exclusively to Financial Express Online Toril Bosoni -Head of the Oil Markets Division at the International Energy Agency says higher oil prices can’t be good news for the economy. It could potentially raise the upside risks to inflation and further delay interest rate cut possibilities. It could also impact India’s external trade balance and deepen deficit.
According to Bosoni, the rising geopolitical tension and the extended output cuts by the OPEC+ alliance of producer countries had already pushed global crude oil prices above $90 a barrel – reaching their highest level since October 2023. This coupled with the repeated attacks on vessels in the Red Sea have disrupted, though not halted, oil supply flows. “This is leading to delayed deliveries and higher freight costs as a rising number of ship owners and charterers avoid the area. The elevated geopolitical tension in West Asia and the risk of further escalation in a region that accounts for a third of the world’s sea-borne oil trade, is something that the IEA and the global market is watching very closely,” she added.
Toril Bosoni, Head of the Oil Markets Division at the International Energy Agency.
Here are excerpts of an interview with her-
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How do higher oil prices affect the Indian consumers?
The high fuel prices are of particular concern to net importers such as India, where there might be limited fiscal room to cushion the impacts of rising prices on consumers. Moreover higher oil prices and renewed inflation risk as a result will keep interest rates higher for longer. This could curb disposable income and economic growth, if sustained. High oil prices also impact India’s external trade balance, deepening the trade deficit and contributing to a weaker exchange rate that can lift domestic energy costs.
World oil supply growth outlook
Oil supply has been tight, how do you see demand- supply dynamics panning out in the current situation?
The extension of OPEC+ output cuts through at least the second quarter of this year and additional reductions in production by Russia have pushed the market balance into a slight deficit from the second quarter. The outlook for the remainder of the year will depend, not only on decisions by OPEC+ regarding its output policy, but also on the health of the world economy, oil demand trends, and the trajectory of non-OPEC+ oil production.
If OPEC+ cuts remain in place, our balances now show a slight supply deficit of 270,000 barrels per day in 2024 overall. For 2025, with non-OPEC+ supply growth expected to exceed global oil demand growth, the demand for OPEC+ crude will fall by roughly 300,000 barrels per day. If OPEC+ were to reduce output in line with its call, the alliance’s effective spare capacity would rise to 6 million barrels per day – its highest level ever except for during the Covid-19.
Top oil suppliers globally (Non-OPEC+ Producers)
In terms of energy security, where do you see India standing?
Energy security remains a key political priority for all countries across the world – and it is a critical imperative for India given it is highly dependent on oil imports to meet its supply needs. As a relatively small oil producer, India’s domestic production accounted for just 13% of the country’s supply needs in 2023. India was already the world’s second-largest crude oil importer in 2023, having boosted imports by 36% over the past decade to 4.6 million barrels per day to meet rising refinery intake. India’s oil demand growth is expected to be the fastest in the world, surpassing that of China before 2030. The energy crisis and recent surge in long-haul crude sources, notably from Russia, has also added further impetus to efforts to sustain the country’s oil resilience in case of market disruptions. India can enhance its capacity to respond to possible oil supply disruptions by implementing and strengthening its Strategic Petroleum Reserve programmes and improving oil industry readiness.
If you can outline the consequences of the Russian situation and price movement as a result on India’s economy.
In terms of Russian oil supplies, an important area to keep an eye on is the potential impact of the recent series of Ukrainian drone attacks on Russian refineries. These have yet to materially disrupt global middle distillate markets, but the potential remains for tighter clean product supplies in the coming months. International light and middle distillate markets rely on Russian exports of diesel, naphtha and jet fuel as a key source of imports. Furthermore, Asian refineries absorb substantial quantities of Russia’s straight-run and cracked residue to boost their supply for upgrading unit feedstocks. So far, trade data do not show that Russian diesel exports are falling, and the bigger picture in middle distillate markets is one of easing supply tightness, rather than concerns over a looming supply crunch. Various factors, including whether drone strikes have resulted in partial or complete refinery shutdowns, making it difficult to discern the impact across different product markets, and hence it remains important to watch market developments closely, which the IEA is doing.
