Opinion: Why Saudi Aramco's New India Office Is Good News for Oil Prices

Published October 11th, 2017 - 07:00 GMT
Saudi Aramco celebrated this week the opening of a new office in India. Here's why it's good news for oil markets. (File photo)
Saudi Aramco celebrated this week the opening of a new office in India. Here's why it's good news for oil markets. (File photo)

After a sluggish start to the week, oil prices are moving again. WTI started Tuesday morning with a jump back above $50 per barrel, and even hit $51 per barrel before declining slightly. This is likely a reaction to several new developments from Saudi Arabia and OPEC.

Saudi Aramco announced on Monday that it will reduce its November allocations to customers by about 500,000 bpd. This comes despite strong demand for Saudi oil, in excess of 7.711 million bpd. This is bullish news for oil prices. Saudi production will likely decrease in the month of November as well, because the Kingdom will not need as much oil for domestic electricity generations as it enters the cooler winter months.

The company also celebrated the opening of a new office in India. Aramco CEO, Amin H. Nasser, said that the company is excited to make further investments in India as that country’s oil market grows. India, he said, “has all the signs of a prosperous economy that is on the move. This is a market of investment priority and not a choice anymore.” The Indian government welcomed Aramco’s plans for a “mega-investment” in the country, despite its recent announcement that by 2030 India will no longer sell internal combustion vehicles. Aramco apparently does not put much faith in the electric vehicle policy because it projects Indian oil demand to reach 10 million bpd by 2040.

Even though OPEC’s regular November meeting is still over a month away, the organization’s leaders are already sending signals that the production cuts will be rolled over into the second quarter of 2018. Saudi oil minister, Khalid al Falih, said on October 8 that he is, “satisfied with the progress” the production cut deal has made so far, but that, “we must keep our eyes on the road and keep holding the steering wheel.”

Mohammad Barkindo, OPEC’s Secretary General, was more blunt. He told reporters on Sunday that, “to sustain this into next year, some extraordinary measures may have to be taken.” It remains to be seen whether this means ending special exemptions from quotas for Libya and Nigeria, pushing Iraq to finally comply fully with its quotas, or, as some have suggested, inviting new oil producers to join in the deal.

So much talk about extending the production cut deal past March 2018, however, could leave OPEC in a difficult situation come November. The organization runs the risk of repeating what happened at the May 2018 meeting. By the time the May meeting arrived, OPEC had made it clear that the production cuts would continue into 2018. However, there were rumors that OPEC and its non-OPEC partners might agree to even deeper cuts, and when this did not pan out, oil prices dropped even though they announced that the OPEC-non-OPEC production cut deal would be continued.

So far, the oil market has reacted bullishly, but November is still a long way off.

By Ellen Wald

© 2007-2022 Fusion Media Limited. All Rights Reserved.

You may also like


Sign up to our newsletter for exclusive updates and enhanced content