Crude at $45 to $50 a barrel is enough to encourage India’s own exploration without squeezing fuel consumers, according to the oil minister of the world’s fourth-largest user.
While the collapse in prices has created a buyers’ market and boosted India’s bargaining power amid an oversupply, low crude is “challenging” for the nation’s own oil fields, Dharmendra Pradhan said in an interview in New Delhi on Monday.
The government’s priority is to protect the interest of consumers and simultaneously attract investments in domestic production activity, he said.
“Pricing affects the Indian market in both ways, because India meets 30% of its own capacity from its own oilfields,” Pradhan said. “Around $45-$50 is a very reasonable price where the exploration and production activities will not be affected and also will not pinch the common consumers in India.” Oil is trading near $40 a barrel, more than 50% lower from 2014 levels, after the US shale boom led to a global glut that was exacerbated by Opec’s strategy to maintain production and defend market share. While the rout has reduced fuel prices in emerging economies such as India, it’s also driven companies from Chevron Corp to BP to cancel more than $100bn in investments that the International Energy Agency says increases the possibility of oil-security surprises in the future.
Brent crude, the benchmark for more than half the world’s oil, traded at $39.66 a barrel by 3:50 pm Singapore time on the London-based ICE Futures Europe exchange. Front-month prices were at more than $115 a barrel in mid-2014.
“I’m appreciating that a new normal has arrived, these are rational prices,” Pradhan said. “Gradually there is a basic paradigm shift. It’s now a buyer’s market, so I have a much more bargaining power in a country like India, which is a huge emerging market.” India is replacing China as the centre of the world’s oil demand growth as its economy expands faster than any other major country and a growing middle class has more money to spend. The nation’s consumption grew by 300,000 barrels a day last year, double the average rate in the previous decade, according to a report by The Oxford Institute for Energy Studies this month.
India’s economy is estimated to grow 7.6% in the year ending this month, the highest among emerging markets. The Paris-based IEA estimates it will consume 4.2mn barrels a day of oil this year, surpassing Japan’s 4.1mn barrels.
The South Asian nation briefly overtook Japan as the world’s third-biggest oil consumer in the second quarter of last year. “We want to be self-sufficient and our Prime Minister has given us a target to reduce our oil-import dependency by 10 percent by 2022,” Pradhan said. “For more exploration activities, companies should get a reasonable price.” India total domestic crude production in the 11 months from April 2015 to February this year was at about 30mn metric tonnes, the oil ministry’s Petroleum Planning and Analysis Cell said in a report last month. The nation depends on imports for more than 75% of its requirements.
On Monday, Indian Prime Minister Narendra Modi offered a wide-ranging rebuttal to critics who say he’s gotten lucky with low oil prices. Loan growth has picked up, corporate rating upgrades are now outpacing downgrades, foreign direct investment hit a record last year and some key manufacturing sectors such as carmakers are growing rapidly, Modi said at an event organised by Bloomberg LP in New Delhi. The focus is now on clean energy, farm incomes and creating jobs, he said.
Earlier in March, India announced steps to attract investment in the nation’s energy industry to help meet Modi’s goal of cutting dependence on imports. The measures will help unlock stranded resources worth $40bn, Pradhan said. “This kind of strategy will augment our existing production,” he said. “That will be sufficient and can reduce our import dependence by a sizable number in next five-six years.”