It took all of seven weeks for crude oil prices to fall by nearly a third from their four-year highs. Naturally, the Organization of the Petroleum Exporting Countries (OPEC) countries and Russia, where crude oil is an important source of revenue, are not amused.

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This is especially noticeable as crude oil prices jumped over $80 per barrel and are now trading at around $65 per barrel. Not only this, West Texas Intermediate (WTI) crude prices dropped 7 percent on November 13 and 20, 2018, as trifecta of US ramping up production, minimal impact of Iran sanctions and mellowed global economic growth came together to rupture oil prices.

Slippery Oil

Crude oil prices were on an uptrend in the September quarter on back of strong global demand estimates, impact of Iran sanctions on global supplies and the US pipeline bottlenecks.

However, the correction began in the first week of October as the US and China trade war started impacting the latter and others. Then came the sell-off in global equity markets that clouded global demand growth.

The US inventories hit 2015-highs and production at 11.7 million barrels per day is now a new record high. The US then told Saudi Arabia and Russia to increase production to tide over Iran sanction impact.

US President Donald Trump’s waiver of six months to eight oil consuming countries, including India, to continue buying oil from Iran led to oversupply in global markets, putting more pressure on oil prices.

The India Impact

Being the third largest oil consumer in the world, India hasn’t been immune to global oil and political upheavals. Crude imports for the month of October rose over 10 percent, at 21.02 million barrels, highest since April 2011 as local economy picked up.

Moreover, analysts feared Indian government would loosen its fiscal deficit targets in view of expanding oil prices, even though the government kept assuring against it. Therefore, the crude oil price correction is a sigh of relief for countries like India, who imports 80 percent of oil it needs.

Primary reason behind the fall of crude oil price is higher supplies. However, weak global economic growth as voiced by the International Monetary Fund (IMF), too, played its part. This would also have an impact on India’s oil demand. The OPEC, in its monthly report, has lowered India’s oil demand growth estimate for 2019 to 7.2 percent from 7.4 percent earlier.

Oil’s Well That Ends Well?

The volatility in crude oil prices is at a three-year highs with prices moving between two and seven percent in a matter of hours. The next thing to look forward to is the OPEC and allies meet in Vienna on December 6, 2018. Here, the oil producers will decide on output policy for 2019.

Global banks and brokers are of view that as the dust settles and the global markets adjust to the supply and demand, the prices will settle in the $60 to $70 a barrel range for 2019.

First Published:Nov 21, 2018 5:06 PM IST