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India, China Truce Required For Energy Security

Author: Arpit Chandna/Wednesday, March 20, 2019/Categories: Exclusive

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India, China Truce Required For Energy Security

At a time when China is opposing India’s move to list Jaish-e-Mohammed chief Masood Azhar as a global terrorist by the UN Security Council, the two countries should unite to secure a good price for their energy needs.

Brent oil prices reached this year’s high, crossing $68/bbl, after global markets witnessed supply shortage following US sanctions on oil exports from OPEC members Iran and Venezuela.

The major contributor of OPEC, Saudi Arabia, is also planning to further voluntary curb supply in April. In lieu of draining the oversupplied crude oil market, Saudi Arabia is planning to keep its output well below 10 million barrels per day (mbpd) less than the 10.311 mbpd that the kingdom had agreed to pump in as part of OPEC-led production cut deal. Due to the OPEC and Russia production cut deal that has started from January 1, Brent crude oil price has risen 25 per cent till now. At present, US and OPEC and Russia are engaged in a price war and the US is forcing OPEC to keep the market well supplied but at the same time levying sanctions on Iran and Venezuela resulting in a squeeze in supplies to the global supply chain.

Asia Pacific is one of the largest markets for global crude oil and is of strategic importance in fundamentals. As per EIA, average petroleum and other liquid consumption in 2018 stood at 35.33 mbpd, which is more than 70 per cent of the global demand for petroleum and other liquids. Further segmentation shows China holds around 30 per cent of the total demand desired among the global oil consumers and similarly, India holds around 8-10 per cent of the total share in global demand.

As a strategic step, the two major consumers in the Asia Pacific region — China and India — should together counter the supplier’s cartel by unifying their role in strengthening demand outlook especially during the current course of a global economic slowdown.

As per PPAC, India’s overall oil import is expected to stand at 228.6 million tonnes for FY18-19, up 3.6 per cent from FY17-18. As per latest reports, crude oil imports decreased by 1.9 per cent during January 2019 and increased 3.2 per cent during April 2018-January 2019 as compared to the same period of the previous year.

China’s crude oil imports expanded at a faster pace, rising 5.1 per cent from one-year earlier to 42.6 million tonnes in January and up 21.6 per cent to 39.23 million tonnes in February. Thus, it is in the vested interest of both the countries to come together for securing their energy needs at the lower price levels. Also, both the countries should benefit from the competition among the suppliers and should flag the economic prevalence of price setters as major consumers.  

The author is a fundamental research analyst

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