Crude oil demand growth to remain stable

Kolkata: Facts first. Crude oil prices rose 0.61 per cent to Rs 4,157 per barrel in futures trade on July 12 as speculators raised their exposure, tracking a rebound in global markets. On the Multi Commodity Exchange, crude for July delivery went up by Rs 25, or 0.61 per cent, to Rs 4,157 per barrel in a business turnover of 23,863 lots. Analysts were not surprised at this at all. They said that the rise in crude oil futures was largely in tandem with a firming trend in global trade. Significantly, West Texas Intermediate crude rose 0.75 per cent to $60.65, while international benchmark Brent was up 0.83 per cent to $67.07 per barrel at the New York Mercantile Exchange.

This has to be seen in light of the fact that crude oil production in India increased to 687 BBL/D/1K in March from 683 BBL/D/1K in February of 2019. Crude oil production in India averaged 697.81 BBL/D/1K from 1994 until 2019, reaching an all-time high of 813 BBL/D/1K in November of 2010 and a record low of 526 BBL/D/1K each in May of 1994. India's crude oil production in May this year fell 7 per cent to 2,800 Thousand Metric Tonne (TMT) due to fall in production from fields operated by ONGC, Oil India and private operators.

Interestingly, the drop in domestic crude oil production pushed India's crude oil import dependence to 85 per cent in the month as compared to 83.8 per cent recorded sssa year ago.

Giving a global perspective, Abhishek Bansal, Chairman of ABans Group of Companies, said that oil prices rallied to a six week high after Gulf of Mexico faced a tropical storm, added with rising tensions in Middle East and US inventory drop for a fourth week consecutively. Oil supplies had been cut in Gulf of México by more than 1 million barrels per day which is nearly 53 per cent of the regions oil production.

"Going forward OPEC expects global demand for its crude oil to decline next year as their rivals continue to pump more crude oil. It is also concerned about the fact that the market is likely to return to surplus even though OPEC led partners persist with production cuts till March 2020. Statistically speaking OPEC expects the global oil requirement of OPEC's crude to decrease by 1.34 million bpd (barrels per day) to 29.27million bpd from the current calendar year.  In June OPEC's production fell by 68,000 bpd to 29.83 million bpd which is 500,000 bpd above the 2020 demand estimates," said Bansal.

He said that OPEC's production cut is also helping US shale production to blossom as it eats in OPEC's market share; this further gives room to US president Donald Trump to continue with sanctions on OPEC members Iran and Venezuela. US's supply could remain at elevated levels and the flow could increase further as new pipelines would mean more US crude can flow to the US Gulf coast for exports.

OPEC also estimates that the global crude oil demand is likely to grow at the same pace in 2020 as in the current calendar year, it also assesses that the world economy could continue to grow at same pace in 2020 as in the current year. However they make this projection hoping that the trade issue between the US and China does not escalate further. They also note the fact that manufacturing activity along with Brexit poses a threat to the global economy which could in-turn impact demand negatively.

"Brent oil futures may face immediate resistance around $67.90-69.20 per barrel whiles the key support level is seen around $65.70 to $61.90 per barrel," he said.

The growing crude oil price volatility has been a cause of concern for India. And the Union Minister of Petroleum & Natural Gas and Steel, Dharmendra Pradhan has already taken up the issue with Alexander Novak, Minister of Energy, Russian Federation. Pradhan urged his Russian counterpart to take into account the interests of consuming countries while engaging with OPEC. He has also taken up the issue with Khalid Al-Falih, Minister of Energy, Industry & Mineral Resources, Saudi Arabia.