Global oversupply fears push India’s crude prices lower

Crude oil futures in India fell sharply on Thursday, 4 September, reflecting a combination of global supply concerns and subdued demand indicators. On the Multi Commodity Exchange (MCX), September contracts for crude oil declined by Rs 46, or 0.82 per cent, to settle at Rs 5,588 per barrel, with a trading turnover of 11,320 lots.

The decline in domestic prices mirrors trends in international markets, where West Texas Intermediate (WTI) crude dropped 1.03 per cent to USD 63.31 per barrel, while Brent crude slipped nearly 1 per cent to USD 66.94 per barrel.

Analysts attribute the sell-off to reports that OPEC+ may announce another production hike at its upcoming meetings, raising concerns over potential oversupply.

Rahul Kalantri, Vice-President of Commodities at Mehta Equities, noted, “Crude oil slumped on Wednesday, giving up earlier gains, after reports suggested OPEC+ may announce further production increases.

Prices were also pressured by a surprise rise in US stockpiles, with the American Petroleum Institute reporting an inventory build of 0.6 million barrels for the week ending 29 August, contrary to market expectations of a 3.4 million-barrel decline.”

Further weighing on global crude prices are weak macroeconomic signals from the United States, indicating slower industrial activity and demand. Axis Securities pointed out that softer US economic data has dampened market expectations for future crude consumption, although losses were partially mitigated by a weaker US dollar.

Implications for India

India, which imports nearly 85 per cent of its crude oil requirements, is directly impacted by global price trends. The fall in MCX crude futures provides temporary relief for domestic refiners, potentially easing input costs and reducing pressure on fuel pricing.

However, the prospect of further OPEC+ output increases could prolong volatility, making price stability uncertain.

The potential production hike being considered by OPEC+ is estimated at 1.65 million barrels per day in October, aimed at regaining market share amid a global supply glut. Combined with rising US inventories and muted demand projections, this could place continued downward pressure on international crude benchmarks, subsequently affecting India’s import bills and inflationary trends.

Industry observers note that while lower crude prices are beneficial for India’s trade balance and refiners’ margins, the market remains susceptible to abrupt swings.

Factors such as geopolitical developments, changes in OPEC+ policies, and global economic indicators could trigger sudden reversals in pricing, necessitating cautious monitoring by policymakers and industry players.

In summary, India’s crude oil futures are trending down amid OPEC+ production signals and weak global demand, presenting both opportunities and challenges. While refiners may benefit in the short term, prolonged supply increases could result in heightened price volatility, influencing domestic fuel costs and broader economic dynamics.