Crude oil prices have recently fallen by approximately $10 per barrel, despite tensions in West Asia. On November 15, Brent crude futures traded between $82.34 and $82.79 a barrel, down from the $91.39 peak on October 16 amid concerns related to the Israel-Hamas conflict. The reasons behind this decline and its impact on the domestic market.
Why the Recent Decrease in Crude Prices?
The West Asia conflict, involving Israel and Hamas, hasn't significantly impacted the oil market since neither Israel nor Gaza produces substantial oil. However, the region's instability, supplying nearly one-third of the world's crude oil, remains a concern. Prices also dipped due to worries about demand, slower economic growth in major economies, and potential increased global oil production with the US easing sanctions on Venezuela.
Factors Leading to the Previous Price Spike
Before the West Asia tensions, crude oil prices were already elevated due to supply tightening. Saudi Arabia and Russia, major oil producers, announced additional supply cuts from July to the end of 2023, with Saudi Arabia reducing production by 1 million barrels per day (bpd) and Russia cutting exports by 300,000 bpd. The spike occurred when Hamas launched a large-scale attack on Israel, raising concerns about potential disruptions to Gulf supplies. However, prices dropped as the conflict did not directly impact oil supplies.
Lower Demand Despite Supply Cuts and Conflict
Despite supply cuts and regional conflict, oil prices have declined due to concerns over demand and global economic growth. Weak demand from China, the world's largest energy importer, contributes to this decline. Chinese refiners have requested less supply from Saudi Arabia for December. However, the International Energy Agency and OPEC increased their oil demand forecasts for this year and 2024, emphasizing strong oil market fundamentals.
Impact on India
Given that India relies on imports for over 85% of its crude oil needs, international oil prices directly affect the country. Lower oil prices benefit state-owned oil refining companies, leading to improved profitability. In the second quarter of FY24, Indian refiners posted a consolidated net profit of Rs 27,295 crore. If the trend continues, consumers may witness a reduction in domestic fuel prices. Despite fluctuations, major Indian oil corporations—Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation—have maintained unchanged retail fuel prices since April 2022.
