gene: Oil’s well that stays well below prices

Crude oil prices are on a declining trend. This, despite production cuts announced earlier this year by Opec and Russia, because US output is likely to reach record highs. Last week, IEA released its projection that suggests that world oil consumption will increase by 1.1 million bpd in 2024, up by 130,000 bpd from its earlier estimate. Opec’s forecast for 2024, also released last week, remains unchanged. The US, however, now reckons prices will average $83 during the year. Opec+ may agree on further production cuts in the first half, which could lead to a temporary support. But the overwhelming sentiment is negative. This is on expected lines with large buyers like China and India drawing on discounted Russian crude in circumvention of a Western blockade of Moscow’s energy exports. It makes it more difficult for the suppliers’ cartel to hold prices unless its members are prepared for deeper cuts.

Cheap oil typically boosts economic growth in India, and helps put it on a course to fiscal and current account balance. For most of its two terms, the Modi government has used depressed oil prices to pull back on the fiscal deficit while forex reserves kept piling up. The drawdown in 2022 has also been reversed. The fiscal space created by an extended period of low crude oil prices has allowed GoI to bump up welfare spending and capex. These are the principal economic achievements on which it will be seeking a third term.

With a low likelihood of oil playing truant before the general elections, BJP should not need to have to defend its economic management of back-to-back crises. It has delivered on growth in extreme conditions and has moved the reforms needle in less taxing times. A big chunk of the reforms agenda, notably privatisation, remains work-in-progress. The ruling party, however, can rightly claim to have made it easier to do business in India. In the process, India’s economic and, hence, political prospects are less dependent on oil prices as the country swivels towards alternative energy sources.