As India readies for another year of strong growth and an upcoming election, energy prices are one factor it may not have to worry about. With an import dependence of 85% and an annual spend of over $120 billion, high oil prices are a perennial concern for Indian policymakers. A scare in Oct-Nov 2023, when rising tensions in West Asia due to the Israel-Hamas conflict pushed the price past $90/barrel, was temporary. Oil prices have since fallen back to the $70-80/barrel range as fears of a larger regional conflict have subsided. This mirrored the events of early 2022, when the Russia-Ukraine conflict temporarily pushed up the price of oil past $100.
That the geopolitical events had no long-term impact on prices indicates a well-supplied oil market. Despite talk of climate action and peak oil consumption, investments upward of $800 billion took place in fresh oil & gas production worldwide. The U.S., Canada, and Norway have all seen large increases in oil production. Global oil major Exxon together with China’s CNOOC has also spent over $10 billion to develop oil reserves in Guyana, a recent addition to the global oil map. These are decadal investments and indicate the confidence of these companies in the future of oil.
These investments fly in face of assertions that global oil demand is set to peak. In its latest medium term oil market forecast, the International Energy Agency (IEA) projects that global oil demand growth will lose momentum over 2022-28, and that it will reach 105.7 million barrels/day by 2028, just 6% more than 2022 level. As per the IEA, after a strong growth of 2.3 million barrels/day in 2023, global oil demand growth will slow down to 1.1 million barrels/day in 2024[1]. However, IEA has a track record of underestimating oil demand. In December 2022, IEA projected a growth of 1.7 million barrels/day for 2023 – 26% lower than the actual figure of 2.3 million barrels/day. It is possible that the projections and perspectives of the IEA are affected by the politics of its largely OECD member states, which wish to see fossil fuels phased out.
IEA’s forecasts are at odds with projections made by the Organization of Petroleum Exporting Countries (OPEC) – a grouping whose economic welfare is closely tied to its accuracy in reading the oil markets. OPEC projects that global oil demand will increase by 2.25 million barrels/day during 2024[2], twice the IEA projection.
While Western institutions rail against oil and other fossil fuels, western companies are following the money. During 2023, the U.S. produced over 20 million barrels/day of oil – greater than the combined oil production of Russia and Saudi Arabia. The U.S. accounted for almost 60% of the increase in world oil production during 2024, while Russia and Saudi Arabia recorded declines in oil production.
Indian policymakers should pay attention to these numbers. Despite the hype around renewables and electric vehicles, oil will remain the driver of the global and the Indian economy for the foreseeable future. India consumes 5.6 million barrels/day of oil, largely imported. A spike in oil prices can derail India’s growth – which is why India must invest in overseas oil fields that can partly protect against price increases[3].
In the short run, Indian planners can rest easy. Apart from the U.S., significant increases in oil production are expected from Canada, Brazil and Guyana over the next year. Among the OPEC countries, the two giants Saudi Arabia and the U.A.E. have 6 million barrels/day of unused production capacity, which can be brought to the market in short order – just a few months. This indicates that global supply will keep pace with demand in the near future and that pending a major disaster, India will not have to worry about oil in 2024.
Amit Bhandari is Senior Fellow for Energy, Investment and Connectivity, Gateway House.
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References
[1] https://www.iea.org/reports/oil-market-report-december-2023
[2] https://momr.opec.org/pdf-download /
[3] https://www.gatewayhouse.in/financial-investments-energy/