The silver lining in the economy

The big oil producers don’t have a deal. This is good for India

The fear of a big-three cartel emerging to resurrect oil prices are overblown. The only silver lining, amid the darkness over the Indian economy, is that crude prices have crashed, offering the country billions of dollars in savings. Recent attempts by major oil producers to negotiate a joint production cut and force prices up are floundering. The Organisation of Petroleum Exporting Countries and Russia have had to push back a planned meeting on such cuts to next week. The two main participants, Riyadh and Moscow, have spent the past few days trading bitter rhetoric. The United States (US), the world’s largest oil producer, has abandoned an earlier attempt to broker an understanding between itself, Saudi Arabia and Russia. President Donald Trump has ordered his government to boost demand for US oil by topping off its strategic oil reserve. The main reason why an agreement is proving so difficult is the magnitude of the cuts required. All the three main players are trying to minimise their share of the burden. Most estimates say the pandemic has reduced global oil demand by about 20 million barrels per day.

With Riyadh and Moscow showing little signs of reconciliation, New Delhi has every reason to presume a financial windfall over the coming months. A complete collapse, say down to $10 a barrel, is not necessarily a good thing. Smaller producers would close down and future investment would dry up — all of which cut production and drive up prices. But those are long-term considerations, out of place in a time of the coronavirus pandemic.