Opec output cut to add to India’s demonetisation woes

The Indian economy, already battered by the fallout from demonetisation of old currency notes, will be further hit by a production cut announced by the Organisation of Petroleum Exporting Countries.

The Indian basket of crude oils has reportedly gained more than $3 over the weekend, while global prices surged to an 18-month high after OPEC agreed on a landmark deal to reduce output.

While crude prices eased slightly on Tuesday, they have not come down much from Monday, when Brent crude rose to $56.44 barrel - the highest close since 21 July 2015. It has gained 51.42 per cent for the year to date.

The impact to India could well be inflationary and add to woes brought by demonetisation. The extent of the impact was indicated by Petroleum Minister Dharmendra Pradhan's briefing earlier this month, when he said India would decide on its import strategy after seeing how the rest of the oil producing countries move.

"OPEC and non-OPEC countries deciding to cut output will impact on 40 per cent of the world's crude producing countries. We are waiting to see how the remaining 60 per cent of producing countries will move before deciding on any strategy," he said.

Experts point out that the market might see an under-supply of crude starting next year, with prices likely staying at around the $53 to $57.