Slip in oil prices amid Israel-Iran skirmishes, India assures adequate fuel reserves
Crude Oil Prices Drop by 1% as Attention Shifts to Iran's Production; India's Petroleum Minister Offers Calming Assurance: 'No Need for Concern'
Oil prices took a dip on Monday after a bullish rally on Friday, propelled by the ongoing hostilities between Israel and Iran. Brent crude slid 58 cents, or 0.8 percent, to $73.65 per barrel by 0900 GMT. US West Texas Intermediate (WTI) slipped 51 cents, or 0.7 percent, to $72.47 per barrel.
Initially, both benchmarks experienced a surge of more than 13 percent on Friday, closing 7 percent up, peaking at their highest levels since January. They briefly skyrocketed over $4 a barrel during early Asian trading on Monday before retreating.
Strait of Hormuz in the spotlight
Although the conflict hasn't hampered oil production or facilities as of yet, the oil market is keeping a keen eye on the Strait of Hormuz, a vital chokepoint for global oil transport. Approximately 18 to 19 million barrels per day, amounting to about one-fifth of the world's oil supply, flow through the narrow strait.
Impact on global crude oil prices and Indian oil companies
Analysts caution that any disruption in the Strait of Hormuz could drive oil prices significantly higher. "Heightened anxieties surrounding a blockade of the Strait of Hormuz could sharply boost prices," said Toshitaka Tazawa, an analyst at Fujitomi Securities.
Iran, a key OPEC member, produces approximately 3.3 million barrels per day and exports over 2 million barrels per day of oil and fuel. Experts believe that OPEC+ producers possess enough spare capacity to compensate for any potential disruption caused by Iranian supply cuts.
India urges calm, claims adequate fuel reserves
India's Petroleum Minister Hardeep Singh Puri advised the public to refrain from worrying about global tensions. In a social media post, he stated, "India boasts substantial reserves of petroleum products like petrol, diesel, and LPG, and our production capacity in this sector is also expanding."
Speaking to media on Monday, Puri asserted that the government is closely monitoring the situation daily.
Trump and Merz call for peace
US President Donald Trump advocated for a ceasefire between Israel and Iran on Sunday. However, he also added, "Often, nations must wage war first." Trump announced that the US will continue to support Israel but did not disclose whether he urged them to halt the strikes.
German Chancellor Friedrich Merz expressed concern and hoped that the G7 leaders' meeting in Canada would help navigate a solution to the crisis and prevent it from escalating further.
Iran refuses negotiations under attack
Iran has instructed mediators Qatar and Oman that it is unwilling to negotiate a ceasefire while under attack from Israel, according to a source familiar with the ongoing negotiations.
Insights:
- The Strait of Hormuz, a vital chokepoint for global oil transport, could witness disruptions if the escalating tensions between Israel and Iran escalate further. This could lead to a sharp increase in oil prices.
- Indian Oil Minister Hardeep Singh Puri assured the public that India possesses ample fuel reserves and its production capacity is on the rise.
- Both Brent crude and US West Texas Intermediate had surged over 13 percent on Friday, peaking at their highest levels since January.
- Iran contributes about 3.3 million barrels per day to global crude oil production and exports over 2 million barrels per day. OPEC+ has sufficient spare capacity to cover potential disruptions caused by Iranian supply cuts.
- Rising oil prices could increase inflation in India, strain the external balance, and affect the competitiveness of Indian exporters.
- If tensions between Israel and Iran escalate, Indian oil companies may need to diversify their supply chains or explore alternative energy sources to mitigate risks in the long term.
- Despite the current escalating tensions between Israel and Iran, any disruption in the Strait of Hormuz could potentially drive global crude oil prices significantly higher, as this chokepoint is vital for oil transportation, with approximately 18 to 19 million barrels per day flowing through it, amounting to one-fifth of the world's oil supply.
- In the midst of these developments, India's Petroleum Minister Hardeep Singh Puri has assured the public that India has substantial reserves of petroleum products and that its production capacity in this sector is expanding.
- Amidst the bullish rally on Friday, oil prices took a dip on Monday, with Brent crude sliding 58 cents and US West Texas Intermediate (WTI) slumping 51 cents, reversing their peak gains reached since January.
- Recognizing the possible consequences, analysts advise that a blockade of the Strait of Hormuz could sharpen oil prices, as Iran produces approximately 3.3 million barrels per day and exports over 2 million barrels per day of oil and fuel. However, OPEC+ producers possess enough spare capacity to potentially compensate for any potential disruption caused by Iranian supply cuts.
- This turbulence in the oil-and-gas industry may influence the economy and business in other sectors, as rising oil prices could increase inflation in India, strain the external balance, and affect the competitiveness of Indian oil exporters. Consequently, diversification of supply chains or exploration of alternative energy sources may be necessary for Indian oil companies to mitigate the risks in the long term.
