News reports of Saudi Arabia and Russia reaffirming their intent to stick with oil supply curbs of more than one million barrels a day until the end of the year, even as the geopolitical tensions in West Asia continue, is a cause of worry. Though crude oil prices have been trading below the fearful numbers ruling earlier — now they are in the range of $80 a barrel — the respite may just be short-lived for consumers like India.

As James Woolseys, an American political appointee who has served in various senior positions in the government there, has been quoted as saying, “We aren’t addicted to oil, but our cars are.”

So concerns for consumers like India arise from the fact that any spike in international crude oil and gas prices would have a ripple effect and disrupt the household budget of its citizens.

The leaders of the OPEC+ coalition announced their plans in separate official statements recently. While Riyadh has slashed daily crude production by one million barrels, Moscow is curbing exports by 300,000 barrels, on top of earlier cuts made with other OPEC+ nations. Saudi Arabia will review its production volumes next month and consider “extending the cut, deepening the cut, or increasing production,” according to the Saudi Press Agency.

In a separate statement, Russia’s Deputy Prime Minister, Alexander Novak, expressed a similar sentiment.

According to Giovanni Staunovo, Commodity Analyst at UBS, “We believe these voluntary supply cuts are likely to be extended into the first quarter of 2024 — given seasonally weaker oil demand at the start of every year, ongoing economic growth concerns, and the aim of producers and OPEC+ to support the oil market’s stability and balance.”

“We believe this monthly review process allows Saudi Arabia to retain control of the oil market, by adjusting its production due to market fundamentals. Russia’s participation is also important, as the country is the second largest producer in the OPEC+ group. The deal ensures close coordination between the two producers,” he said, adding “We continue to expect Brent oil to move back into a $90-100/bbl range, supported by lower oil inventories.”

The next OPEC+ ministerial meeting is scheduled on November 26 in Vienna.

Now, anything above $80 a barrel is worrisome for India. Oil prices have been fluctuating in recent weeks. Any extension of the current conflict between Israel and Hamas to other parts of region will create supply disruptions.

Weather matters

According to Ehsan Ul-Haq, Lead Analyst Forecasting - Oil Research at Refinitiv, “I think, much will depend on weather in the Northern Hemisphere. If temperatures remain above normal, there will be less demand. Refinery margins are also weakening, which do not bode well for demand.”

“In January, refineries start buying for the second quarter, when demand is not as strong. I think, Saudi Arabia and Russia will know a bit more about demand at the start of December and will decide accordingly. Oil prices will depend on the Middle Eastern conflict, which means consumers will continue to face higher prices,” he added.

Industry trackers feel Saudi Arabia may want a high price to fund some of its expensive projects and Russia needs it for other purposes.

Kang Wu, Global Head of Demand Research, S&P Global Commodity Insights, said: “The decision of Saudi Arabia and Russia to extend their product cuts to the end of the year has already been incorporated into our price forecast. On that basis, Platts Dated Brent prices are forecast to decline by the first quarter 2024 from current levels, but with potential for volatility owing to wars and economic uncertainty.”

“Our annual average for Platts Dated Brent (base case) is $85 a barrel in 2024 and $76 a barrel in 2025. India is likely to benefit from the easing oil market with moderated oil prices. However, if the Israel-Hamas war intensifies where Iran gets involved and US tightens sanctions or if Saudi Arabia cuts production further than what is announced, the price of oil may spike significantly above the level today, negatively affecting all oil importing countries including India,” he added.

“Demand for petroleum products is not exactly growing, globally speaking. India is the only country which is showing steady growth in terms of all petroleum products, including turbine fuel and LPG. OPEC is struggling since the demand and supply picture is not at all rosy — therefore, to keep their cash flows healthy they try every possible tool to push prices up, with production cut the most potent one. They try to create shortages artificially,” says energy expert, Narendra Taneja.

“For India, anything above $80 a barrel is outside the comfort zone,” he added.

The price at which Indian refiners sourced their crude oil (Indian Basket) as on November 11 stood at $81.64 a barrel. After hitting an average of $93.54 in September and $90.08 in October, it has softened and averaged $85.55 in November till now.

Last month, the Minister for Petroleum and Natural Gas, Hardeep Singh Puri, was quoted as saying that the country will be able to manage oil prices above $100/ barrel, but it could lead to “organised chaos”.

Any instability in the market will affect the consuming nations, however prepared they might be. For consumers like India, while energy transition is happening, it also needs to scale up its domestic production further to ensure that the transition is smooth.