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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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India To OPEC: Soaring Oil Prices Will Erode Demand

OPEC needs to pay more attention to the movement of oil prices and take action to reduce them or it will find itself with a slowdown in demand on its hands. That’s what Indian Oil Corp’s chairman said as quoted by Bloomberg, adding that the negative effect on demand will become evident in the longer run, with as much as 1 million bpd in Indian demand erased by a switch to natural gas and electric cars by 2025.

India imports most of the oil it consumes, which makes it extremely sensitive to changes in international benchmark prices. The country already called on OPEC to take the lid off production earlier this year, and OPEC heeded the call. Yet prices are once again rising to levels that from the Indian perspective are unreasonable, as Petroleum Minister Dharmendra Pradhan called them.

The drivers behind this latest rally smack of a perfect storm: a deadline for U.S. sanctions drawing nearer and the U.S. pressuring its allies to cut imports from the country to zero; a production outage in Libya that’s taken off most of the country’s production offline; and another outage, in Canada that has dented production by more than 300,000 bpd.

The Iran problem is the most sensitive for India, which has maintained good relations with both the United States and Iran. Initially, when President Trump announced that the U.S. will quit the Iran nuclear deal, India was defiant. Later on, when the implications of going against the world’s biggest financial system became apparent, New Delhi folded, sparking criticism both at home and in Iran.

The situation is indeed conducive to finding alternatives to crude oil, and consumers in India are certainly looking for them. That should be good news for the EV industry and other alternative technologies. Some observers are skeptical that alternatives to fossil fuels will catch on quickly enough—but then, IOC’s chairman said, economic growth nor oil demand growth is not a given.

“We have told them [OPEC],” Sanjiv Singh said, “kindly don’t think growth will come only because everyone is projecting it. It is heavily linked with prices.”

By Irina Slav for Oilprice.com

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Leave a comment
  • Masked Avenger on July 11 2018 said:
    No kidding india. Big oils greed is splitting it's own throat. Die monster die.
  • John Scior on July 11 2018 said:
    I am sure that the main thing to worry about is a sudden price spike. If there is a gradual price increase over time people will adjust their driving habits, otherwise a sudden spike means people look to alternatives in fuel and in transportation. I am certain there will be third party intermediaries more than willing to smuggle oil from Iran to India amongst other places. This includes countries such as Russia and China. For example , since China is ignoring the sanctions, they buy the Iranian oil at a discount , then either use it themselves or sell it as a refined product if not outright ship it to the final buyer as crude itself. Sanctions will only serve to cut the profit margin from Iran. By now the Iranians have to be fully adept at finding ways of bypassing the stranglehold. They've been able to keep their f-14 fighters going and going like the energizer Bunny.
  • John on July 11 2018 said:
    Trade must be 2 ways!
    If certain countries want cheaper oil,
    Then the price of other materials that
    Go to other countries have to drop as well.
    Producing oil countries cannot pay the price
    Of what they trade , and pay three times higher
    For construction materials,technology and so
    On.

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