NEW DELHI: Oil prices will give up the recent surge if there is no major retaliatory action by Iran within weeks since the top Iranian general’s killing has raised regional tension and stoked fears of supply disruption but hasn’t changed the actual demand-supply situation, chairman of Hindustan Petroleum Corp has said.
“The news has been factored in the price. Now it’s about the perception of the people, whether it will escalate or not,” HPCLNSE -0.34 % chairman MK Surana told ET in an interview. “Some new trigger can only take it further in the next few weeks. But if there is none, prices will come down.”
Oil prices had climbed about $3 on Friday to reach $69 a barrel. Increased risk perception, efforts at short-covering, and speculation could still drive oil prices up a bit but not beyond $75 a barrel, Surana said.
“This event has the potential, depends on how Iran responds. The past few events make us believe that the impact will be limited,” Surana said, mainly referring to how the September attack on Saudi Arabia’s installation, which had removed 5% of global oil supplies, provoked no quick retaliation. A fast restoration of supplies by Saudis and abundant supply in the world market ensured prices were back to pre-attack levels quickly.
What would be important to see is not just how Iran retaliates but also how the world responds to that retaliation, Surana said, adding that he would also be keenly watching the exchange rate over the next few weeks. “If the bond yield is going up based on the risk perception of the people, it will have an impact on the movement of dollar in and out of the country,” Surana said. Rupee depreciation increases import bill for refiners like HPCL.
Higher crude prices also push up pump prices for petrol and diesel in the country that are already at 13-month high. Local rates of petrol and diesel have already risen Rs 2.5-3 per litre in two months.
“Had Iran been a full-fledged supplier, the impact could have been much bigger,” Surana said. US sanctions have severely curtailed Iran’s production and exports, and cut off world’s dependence on Iranian crude. Besides, the world’s dependence on Middle East is much lower today than it was a decade ago as the US and Russia have become key oil producers, and can swiftly respond to demand-supply signals, Surana said.
“Availability of surpluses is still there. Which is why the production cut news hasn’t increased prices substantially,” Surana said, referring to the limited effect of recent extension of production cut agreement between OPEC members and allies.
The US-China trade tensions hasn’t resolved fully and so the demand concerns remain, he said, in a bid to bolster his point that neither demand nor supply situation has changed significantly and therefore just the increased risk perception on Iran can’t keep driving prices for long.