India has found a new exporter to supply its growing energy needs and it is surprisingly the United States. In the year of 2018 India imported oil and gas worth 3 billion dollars from the United States. The Trump administration had complained about huge trade deficit with India since assuming power, the reduction in the deficit will bring both countries closer as American complaints are being addressed. “It (gas and oil) is a completely new import on India’s part from the US and will directly result in bringing down America’s trade deficit with us. However, it doesn’t mean that we will stop importing from Iran,” said an official.
The decline in oil prices was due to a surprise US move to grant exemptions to 8 countries including India over oil imports from Iran until April 2019. The exemptions will be reviewed every 6 months. “We will have to see what the US has to say at the end of six months. But the fact remains that our national and economic interests will keep guiding our decisions,” added the official.
Another reason behind southward movement of international crude oil prices was the rise in US inventories due to growth in shale oil production. The price of Brent crude oil declined by 5 percent yesterday to reach a 14-month low at 56 US dollar per barrel. The OPEC nations and Russia started cutting oil production in the initial months of this calendar year but during mid-year, they have raised the production again. However, the slump in oil prices has forced them to agree on the production cut again. Oil exports by Saudi Arabia have notched the highest mark in the last few months but now the oil kingdom has also agreed to cut the production.
However, the cut in production by OPEC-Russia is not expected to revive the price of crude in international markets because American shale oil production is expanding at an exponential rate. The forecasters expected an increase of 1 million barrels per day but the industry registered growth of 1.53 million barrels per day which is almost 50 percent higher than the expectations. To put it in perspective, the addition in US shale oil capacity is almost equal to half of Iran’s total output for a year. The US emerged as the top crude producer with 12 million barrels per day, ahead of Russia and Saudi Arabia. The US does not seem to have any plan to reduce shale oil production in the upcoming months. In fact, American companies have planned to increase production.
In 2018, the country became a net oil exporter for the first time in 75 years. The majority of US oil is flowing Asian countries like China, India, Taiwan, South Korea, and Japan. The flow of US shale oil to international market will keep the global crude prices low. So the price of oil is going to be low in the upcoming year which is great news for the Modi government. As Modi government seeks re-election in less than a year, lower fuel price is set to help the bid.