Saudi Aramco followed up by raising the OSP (official selling price) for July shipments to Asia, Europe and America, indicating that the grouping’s largest oil producer is willing to go solo to bump up prices.
The Saudi decision, announced after a fractious meeting of the OPEC+ grouping on Sunday, pushed benchmark Brent to $78 per barrel on Monday before settling more than 1% higher at $77.
Riyadh had on April 3 spooked the oil market by announcing a voluntary cut of a million barrels per day (bpd), while others were to pare output by 0.6 million bpd. That decision had pushed Brent up $9 to above $87, which has since dropped to $70s in recent weeks.
The latest reduction comes on top of the existing production cut of 2 million bpd (barrels per day) and the 1.6 million bpd voluntary cut announced in April. Altogether, these could amount to 4.6 million bpd, or 4.5%, less for the world.
This is a big gap to fill if the International Energy Agency’s projection of oil demand rising to over 103 million bpd, up 2.2 million bpd from current level, come true. Others are, however, sounding increasingly cautious recently in view of growing concerns over global economic growth and oil demand.
India is vulnerable to high oil prices or market volatility as it depends on imports to meet 85% of its crude requirements. The latest Saudi move and reports of rift within OPEC+ over the issue as well as divergent views of demand growth introduce an uncertainty that could lead to the oil price pot boiling and induce volatility.
The scenario could lead state-run fuel retailers India to hold pump rates instead of reducing them to pass on the benefit of the current low oil prices. Petrol and diesel prices have been frozen since May 22 last year after the Centre reduced excise duty on petrol and diesel to cushion consumers as the Ukraine conflict sent oil prices surging.
Lower oil prices have made petrol and diesel profitable for retailers, earlier running up losses due to a freeze on pump prices amid elevated crude. Private retailers Jio-BP and Rosneft-promoted Nayara have cut pump prices but the state-run retailers who continue with the prices with a view to recovering past losses. The latest Saudi move may have given them a reason to carry on as it is.