World hurtling towards oil shock?

By Batuk Gathani

BRUSSELS, FEB. 22. With crude oil prices nudging towards the $26 mark and the spectre of new discord emerging in the OPEC, the world's largest and most powerful oil cartel, there is growing unease in western capitals amid realisation that the world may be again vulnerable to a new oil shock and that current high oil prices could be damaging to oil consumers and producers.

The Executive Director of the International Energy Agency (IEA), Mr. Robert Priddle, today said the OPEC might find it difficult to correct the imbalances it had created by restraining supplies. With oil prices at a new record high, the OPEC is seen putting more oil in the market. Then there are crucial policy differences within the OPEC countries and some OPEC member-States are even suspected of cheating on their agreed production quotas. The OPEC is again meeting on March 27 at Vienna to work out a new oil strategy.

In November 1998, the international crude oil price was hovering between $11 and $13 per barrel mark, with no immediate prospects of it going higher in the wake of the recessionary trading conditions then highlighted by major economic downturn in the ASEAN region. All that is now history and the oil prices have doubled in 15 months.

The prices of heating oil and diesel transport fuel in the U.S. are rising as oil inventories have fallen to record low levels. In the U.S., the Texas crude is nudging towards the $30 per barrel mark. The U.S. Energy Secretary, Mr. Bill Richardson, recently travelled to various oil capitals to voice concern about higher oil prices and lower inventories. The outcome of his mission remains confused until the OPEC clears the air at its March 27 meeting.

Iran, 15 months ago, made approaches for the first time to its major trading partners to seek loans to meet its financial obligation to avert bankruptcy. The Iranian Government was then financially handicapped by record low oil prices and mounting debt. The Iranians were then negotiating with Japan, Germany and Italy for an immediate $3,000 million `injection' loan to meet its immediate financial obligations and starve off an embarrassing default on debt repayment, as Iranian oil revenues fell by nearly 40 per cent in six months due to record low oil prices.

Impact on India

The current turbulence in oil prices could also have significant impact on India's import costs. The Indian level of self- sufficiency in oil has declined from some 70 per cent a decade ago to little more than 40 per cent now. This is attributed to static domestic production and growing demand.

According to projections made for the Ninth Plan, the domestic crude production will only meet 32 per cent of requirements by the turn of the century, which would suggest that about 70 per cent of oil needs will have to be met by imports.

India may be importing 74 million tonnes of oil if the consumption rises to an estimated 112 million tonnes in the beginning of the 21st century. The import of crude oil continues to grow. The domestic production, minus a miracle, is unable to keep pace with the growing consumption. In monetary terms, this could make a significant dent in its foreign exchange resources.

In mid-1990s, a World Bank study reveals that 80 per cent of India's foreign exchange earnings will be used to finance imports of crude and petroleum products, by the end of this decade.

The OPEC cartel is now worried by discord over potential boost of oil output. The world demand is about 71 million barrels a day, hence the oil price movement is obviously a dominant theme in the world energy sector.

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Section  : International
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