India: The oil market is basically all about psychology

The latest edition of the BP Statistical Review of World Energy 2007 estimates that India’s oil reserves will last only 19 years or so before running dry.

While this is an improvement on the 2002 figure, which gave the reserves an estimated lifespan of only 17.2 more years, there are two main causes of alarm for India, according to Mr Howard.
“Most oil exploration companies are now very cautious about the prospects of making big onshore oil discoveries; therefore there is a strong case for assuming that Indian oil has ‘peaked.’ The other is that BP’s figure is based on the assumption that production of existing oilfields stays the same. But this cannot be taken for granted.”

Oil consumption has soared in India over the past few years and will continue to do so if the country sustains a similar rate of economic and demographic growth.

In such a scenario, there would be more pressure on domestic producers to increase production, “particularly if there is any serious disruption of supply – in the event, perhaps, of a terrorist attack on Gulf nations, serious political trouble in, say, Nigeria, or US military action against Iran.”

In his view, interpretation of oil data is essentially all about how optimistic or pessimistic the perspective happens to be.

“Optimists can easily read all they want into any such ‘estimates’ – which are often fairly wild speculations in the oil trade.”

However, given the wider global framework that the BP report is part of, most people would be more likely to take a pessimistic viewpoint.

“This is simply because since 2003 the price of a barrel of oil has spiralled, while China continues to experience a rapid rate of industrial growth. These are the ‘subjective’ reasons why the BP report is more likely to cause alarm in New Delhi than complacency.”

The Hindu