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Crude prices likely to fall as Ukraine crisis eases |
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India and the UAE have now agreed to cooperate for setting up a strategic petroleum reserve in India. This also aims at further strengthening economic relations between the two countries. India has actually drawn up an ambitious project of establishing 5.03 million tonne (MMT) strategic crude oil storages in the country. UAE’s commitment to cooperate in the project would give a major boost to Indian initiative. The whole issue was discussed at the second meeting of India-UAE high-level joint task force (HJTF) on investment in Mumbai recently.
This has also to be seen in light of the fact that India is the world's fourth largest crude oil consumer with consumption at 3.1 million barrels per day. India imports almost 70 per cent of its total consumption. Crude oil is also the biggest component of India's import basket and its price affects overall economy. Economic development is expected to further increase its consumption. The Indian commodity market is growing and crude oil is one of the most traded commodities on domestic bourses.
The new move on petroleum reserve in India will benefit both the countries’ energy security. As per plans, India is likely to set up strategic crude oil storages at three locations in South India —Visakhapatnam, Mangalore and Padur (near Udupi). Mind you, these would be in addition to India’s existing storages of crude oil and petroleum products with the oil companies. The new reserves are expected to serve as a cushion in response to external supply disruptions. At least that’s what Indian Strategic Petroleum Reserves (ISPRL), a special purpose vehicle owned by India’s Oil Industry Development Board (OIDB), aims at.
Analysts pointed out that this development will certainly not have any impact on the crude prices and crude market immediately. However, on a longer-term horizon, this will certainly bring in significant changes.
Significantly, thanks to the sanctions on Iran, Indian refiners had stepped up imports mainly from Saudi Arabia, Venezuela and Iraq in FY12 to make up for lower shipments from Iran, with supplies from the West Asia region constituting about 69 per cent of overall imports, compared with 64.5 per cent in FY11. Imports from the West Asia during the year rose 12.1 per cent from a year ago while those from Latin America increased by 3.7 per cent. However, the weightage of Latin American oil in India’s crude diet declined marginally in 2011-12 from a year ago. Latin American countries such as Venezuela and African nations such as Nigeria have been strengthening their position as important suppliers of crude oil to India.
While these are the factors anyone following the crude market has to keep a close watch on, in the short run it is the tensions in Ukraine that are having the maximum impact on crude prices.
Emkay Commotrade expects crude oil prices to move lower with tensions in Ukraine easing and inventories data expected to be higher.
“US crude oil moved lower by more than 1.5 per cent when Russia ordered its forces back to their bases, reducing the supply disruption fear. Increasing tensions had pushed crude prices higher by more than 2 per cent. In Libya, top officials said production at the El Sharara oilfield may resume as they are working to address protesters’ demands. Production there has fallen to little over 200,000 barrels per day from 1.4 million bpd in July due to protests that closed the oilfield in the eastern region of the country US commercial crude oil inventories rose by 1.2 million barrels last week, according to the American Petroleum Institute,” said Emkay Commotrade.
A recent report says OPEC oil output fell slightly in February to a two-year low. Average output is down to 29.877 million from 29.888 million last month. For crude oil, immediate support is at 6325 and major support is at 6270, resistance is pegged at 6415. Initially some weakness could be seen, but overall bias looks positive and buying on dip should be the strategy, said the latest report from Motilal Oswal Commodity Broker.
Source : mydigitalfc.com
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