The Hindu : U.S. ultimatum pushes down oil prices

Online edition of India's National Newspaper
Thursday, Mar 20, 2003

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National

U.S. ultimatum pushes down oil prices

By Sushma Ramachandran

NEW DELHI March 19. As the world inches towards war, a sudden silver lining has emerged for this country as international oil prices have dipped in response to the ultimatum given to Iraq by the U.S. President, George Bush. In contrast to expectations that prices would shoot up, the certainty of war appears to have stabilised the prices with the benchmark crude prices falling to around $34 a barrel from over $36 just a few days ago.

The softening in world markets is being attributed to the absence of uncertainty any longer which had fuelled the volatility seen in recent months. It is now quite clear that the U.S. intends to attack Iraq and the assessment is that the superpower will win the war. While it may be premature to make any predictions about price movements in the next few weeks, it seems apparent that the prices will not skyrocket to over $40 a barrel immediately.

This comes as good news to India which has to import as much as 70 per cent of its total crude requirements from abroad. Though the Petroleum Minister, Ram Naik, has been saying that the stocks are sufficient to meet the requirements, if the prices go up sharply they would impact the exchequer. During the current fiscal — 2002-03 — the oil import bill is expected to cross $16 billion with the prices averaging about $28 a barrel over this period. The worry is that the bill could mount to about $23 billion if the prices for the next fiscal range between $36 and $40 a barrel.

At the same time, there is no doubt that tensions in the geopolitical climate will continue and the prices are not likely to come down significantly. These are bound to remain over $30 a barrel, still much higher than the average import price for 2002-03.

The import bill will thus definitely rise from this year's level but the extent will depend on developments in the West Asian region. An industry assessment is that it could be around $19 billion in 2003-04.

The domestic oil scenario, however, has become somewhat more complex with the work-to-rule agitations currently under way in the country's largest oil company, Indian Oil Corporation (IOC). The employees' demands relate to computer allowances as well as restructuring of marketing.

As a result, supplies to the dealers of LPG, petrol and diesel have been hard hit in all regions barring the east where the unions have not joined the agitation. Employees of HPCL and BPCL will also go on a three-day strike from March 25 protesting privatisation, following the IOC strike on March 24 and 25.

In view of these agitations, the backlog in availability of LPG cylinders has risen to about seven days supplies, according to industry sources. Even petrol and diesel inventories have dipped and the stocks are said to be at low level though it is officially stated that the situation is well under control.

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