Afghan war not likely to affect oil prices

By Our Special Correspondent

NEW DELHI, NOV. 12. In spite of the continuing war in Afghanistan, world oil prices appear set to remain within a price band of $15 to 20 a barrel over the next six to eight months. This gives a reprieve to India which is increasingly dependent on oil imports to meet its total energy requirements.

Outlining such a scenario, the Tata Energy Research Institute (TERI) says that oil prices will ``probably'' remain in the $15 to 20 range in the immediate future. ``This scenario of course presumes that the war is not extended to Iraq,'' says the TERI Director General, Dr. R.K. Pachauri. In such a case, there could be a sharp increase in prices as was the case during the Gulf war in 1990.

Dr. Pachauri recalled that in the wake of U.S. air strikes on Afghanistan, there were serious concerns about a significant increase in international oil prices. After an initial spike, arising out of nervousness in the oil market, prices have actually been coming down. Faced with this trend, statements from OPEC functionaries clearly point to a cut in production which could be anywhere between one million to two million barrels per day. Given the extent of cheating that takes place against OPEC production quotas, the actual production cut may not exceed 500,000 barrels a day, he said. Currently, the overproduction is estimated at about 900,000 barrels per day. With the current recessionary conditions in the global economy and sluggish demand, he felt it was unlikely that oil prices would go up significantly. The other key factor determining the outlook for oil prices is action by the key non-OPEC producers, particularly Norway, Mexico and Russia. OPEC requests to get the support of this group for cuts in output on their own oil supply have so far fallen on deaf ears, he added.

Dr. Pachauri stressed the importance of monitoring oil imports since India's dependence on supplies from abroad was expected to rise from the present 70 per cent to 85.2 per cent in 2010. In this context, he said initiatives were needed to reduce the country's dependence on oil imports.

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