Oil firms wary of crude dip

Supply concerns persist despite Saudi Arabia's offer to provide extra supplies

Crude oil prices are slipping southward. But it is hardly a cause for the domestic oil industry to cheer.

Crude brent of Western Texas Intermediate (WTI) hit below the $68 a barrel level the previous day. However, supply concerns persist despite Saudi Arabia's offer to provide the market with extra crude.

While Dubai brent average price dropped marginally to $60 yesterday, from the previous day close of $60.28 a barrel, the UK brent fell to $62.62, vis-a-vis previous day's close of $63.91.

Industry analysts are not impressed with this indication of decline, as the earlier fall to the level of $57 a barrel did not help the sector anyway.

"We can't predict the future price of crude oil, because it is directly and indirectly related to various factors. Crude oil is the raw material for many products such as polymers. Naturally, the price rise will affect such products," said Kamal P Nanavaty, president (cracker and polymers), Reliance Industries (RIL).

Crude prices fell after Saudi Arabia had pledged to pump more oil to cover supply problems in Nigeria. With problems of militant activity in Nigeria and the nuclear debate with Iran persisting, Saudi Arabia's offer to ensure supply levels from Organization of the Petroleum Exporting Countries (Opec) could not take out heat from the prices.

"Surging oil prices will diminish the prospects of petroleum refining companies. Recent quarterly results of oil majors are reflecting the high international prices. Now the petroleum ministry is keen to explore more oil and gas blocks and also bid for blocks abroad. We are getting tremendous support from the Gujarat government to go in for exploration abroad," said D J Pandian, managing director, Gujarat State Petroleum Corporation.

"Although the dispute with Iran could have a devastating impact on the demand-supply balance, the market seems to be still cautious in pricing this possible outcome," an analyst said.

"Oil price was down when the demand was low. Now the demand-supply disparity is high and the price up. This will continue till new oil findings are in operation. At some stage, the price will come down through the political operation of Opec, but that will go reverse after a slight fall," an Indian Oil Corporation executive said.

Countries with rising fuel consumption such as China and India are more concerned about the price rise. So, the two nations are competing to acquire oil and gas blocks.

The year 2006 had begun with two high-level Indian delegations, led by foreign secretary Shyam Saran and minister of petroleum and natural gas Mani Shankar Aiyar visiting Beijing. Both the delegations had strategic dialogues with China, and the two countries agreed to avoid confrontation in the oil sector. These are positive signs for the domestic oil majors and expectations are building despite crude scare.

The countries understood that aggressive bidding by either party only pushes up the price of the oil asset to the advantage of the seller. Aiyar remarked on the negative of the competition between

"Developed nations like the US, the UK, Germany and France are not doing enough to restrain oil producing countries from pushing up the prices, and the developing countries are paying for it," an industry expert said.

Crude oil futures had hit historic highs last August following Hurricane Katrina played havoc on the US gulf coast energy installations; prices struck the $70.85 a barrel level in New York. After that crude prices hovered above $65 for long and recently it came down to $57.