Global oil market playbooks are changing as countries look out for their interests in the glacial movement of oil prices and the market’s recent choppiness. India, for example, recently announced its decision to diversify its oil import markets as it angles towards lower average energy prices.
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The gambit sees the country looking to extend imports beyond its traditional trade partners of the United States of America (USA) and Guyana.
The India market shift, analysts note, could set the tone for more aggressive supply chain competition amongst non-traditional suppliers of oil to India who would find the country a fine game for offering ‘sweeteners’ to take a piece of the Asian oil and gas market. How would the tactic pan out for prospective suppliers? the possible outcomes are mixed depending on the existing relationships between India and the new supplier and the type of oil produced in the prospective country of supply. For example, Indian industries prefer heavier oil to the lighter oil brands that come from countries such as Nigeria and Angola. This would mean that African countries would not be the first choices in India’s oil supply diversification plans.
Preferred countries for the Indian foray into new supply markets for heavy crude would be Iran and Venezuela, but the ongoing political tiffs between both countries and the USA would make these options very difficult choices.
Many non-oil-producing countries depend on OPEC and its allies, a group called OPECplus, to supply oil for their domestic consumptions. To strengthen oil price, OPECplus extended its production cuts to April 2021 with little exception to Russia and Kazakhstan. But as OPECplus uses the production cut to tighten the oil market, oil importers are seeing domestic growth chopped at the knees by the rising cost of oil imports.
The Local Cost of An Oil Squeeze
Analysts note that domestic inflation in oil-importing countries has started to rise above policymaker’s expectations and could lead to unexpected monetary tightening which in turn would raise domestic interest rates and clobber gross domestic product (GDP) growth.
Against this development, oil importers have started to look for strategies that would improve possible economic outcomes such as diversify their import sources to generate more supplier competition to contain a supplier price squeeze.
The Indian economy was adversely affected by the coronavirus pandemic as it recorded the highest number of coronavirus cases in the Asian continent. To curtail the spread of the virus the Indian economy enforced strict lockdown which adversely affected the economy. Although the Indian economy is out of recession as its GDP grew by +0.4% in Q4 2020, it recorded a pandemic induced recession in Q3 2020 as its GDP contracted by -7.3%
Fuel consumption has become an integral part of the Indian economy, therefore, activities in the international oil market affect the Indian economy. Also, recent reforms of the fuel taxation and subsidy system in India have meant that consumers would increasingly be susceptible to changes in the international oil market. Although India’s inflation rate eased to a 16-month low of 4.06% in January 2021 mainly on account of the softening of food and vegetable prices, the rise in crude oil prices and their transmission into retail fuel prices have posed a concern for the government’s economic recovery effort and the mandate by the Indian government to the Reserve Bank of India (RBI) to keep inflation within an average rate of 4% and a margin rate of 2% on either side of the average
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