It is complicated! This is how the fossil fuel market is best defined. Year after year a new challenge emerges which needs to be handled with care as economic growth, spearheaded by rapid urbanisation and industrialisation, is increasingly dependent on energy consumption. This growth-energy correlation is also evident in India, which is now the world’s third largest oil and LPG consumer, and the fourth largest LNG importer, refiner and automobile market.

Most of those associated with the sector feel that India would be comfortable with crude oil price of up to $70 a barrel (average). Of course, the lower it goes, the better. Despite the Ukraine-Russia and Israel-Hamas conflicts and production cuts by the OPEC and OPEC+, the price has not surged. Also, analysts say demand from China has not risen as per expectations and forecast,. Some had predicted crude oil price rising to $150/barrel. Shipping freight and insurance have gone up by 50 per cent due to the Houthi problem. “Of course, they may not block Gulf crude,” an expert said.

As Umud Shokri, a Washington based energy strategist and senior visiting fellow at George Mason University, puts it, “As 2023 ends and 2024 begins, the global fossil fuel industry is going through a dynamic and complicated period of change. The Short-Term Energy Outlook published by the US Energy Information Administration projects that the world’s consumption of liquid fuels would rise by 1.8 million barrels per day (b/d) in 2023 and 1.3 million b/d in 2024. The research does, however, also predict that further production cutbacks by OPEC+ will counteract non-OPEC nations’ rising in output, maintaining world supply growth below global demand.”

The supply of fossil fuels is still expanding despite the growing interest in renewable energy sources; renewables are not replacing fossil fuels, but rather meeting the increased demand, Shokri said, adding, “OPEC’s oil production in 2024 will be shaped by several key factors. The ongoing production cuts, initiated by OPEC+ to reduce output by 1 million barrels per day from January 2024, aim to impact global oil prices and optimise member countries’ oil reserves. Balancing high oil prices with global economic stability and competition from non-OPEC producers poses a challenge for OPEC, as it strives to maintain or expand its share of the global oil market without causing economic downturns or incentivising rival production efforts.”

Political considerations, including potential influence on US elections, also play a role in OPEC’s decision-making, he said, adding that “additionally, interactions with non-OPEC producers, such as discussions between Russia and Saudi Arabia on oil production quotas, and broader global oil market dynamics, encompassing supply and demand, spare production capacity, and geopolitical developments, further influence OPEC’s actions. Together, these factors will collectively define OPEC’s approach to oil production and its impact on the global oil market in 2024.”

Russia’s influence

Going by the flow of events, Russia can sell crude, some time, on non-commercial considerations. “It is difficult to gauge their behaviour. Also, Russia needs revenue to run their economy. They have to sell crude at attractive prices to earn revenue, and China and India are expected to be the major buyers in 2024 also,” a trader said.

“In 2024, it is anticipated that Russia will still have a significant influence on oil prices. Global oil prices have a significant impact on the nation’s oil output and export earnings. Russia is a big oil exporter, therefore changes in oil prices have a big effect on the country’s economy,” Shokri said, adding that “the nation’s relations with OPEC and other oil-producing countries also show how much of an impact they have on oil prices. The way Russia has responded to sanctions and how it sets its oil prices have also had a significant impact on the dynamics of the world oil market. All things considered, Russia’s standing as a prominent oil producer and exporter guarantees that its influence over oil prices will not diminish by 2024.”

While one understands the geopolitical dynamics of the oil market, one also need to understand that a consumer like India cannot risk the global shifts that happen in the oil market which bring in a major element of uncertainty and unpredictability. So, what should India do?

“In 2024, India can adopt a comprehensive approach to bolster energy security by focusing on diverse strategies across energy production, distribution, and consumption. One key avenue is the continued diversification of energy sources, with investments in renewable options like solar, wind, and hydroelectric power, reducing dependence on imported fossil fuels. Energy efficiency improvements across industrial, commercial, and residential sectors can mitigate overall demand, enhancing resilience against supply disruptions,” he said.

“Simultaneously, strategic investments in clean energy technologies, along with well-balanced policy measures considering consumer price sensitivity, will play a vital role. Additionally, conducting thorough risk assessments and implementing targeted mitigation strategies can address vulnerabilities in energy security. Emphasising sustainable energy supply based on renewables further contributes to long-term stability, aligning with national and human security considerations,” he said, adding that “by adopting these multifaceted strategies, India can fortify its energy security, ensuring a reliable, affordable, and sustainable energy supply to support its expanding economy and population.”

India on its part has been taking steps to boost domestic production. And keeping up the momentum are the domestic exploration companies. ONGC has announced the successful commencement of “First Oil” from the deep-water KG-DWN-98/2 Block, situated off the coast of Bay of Bengal. The 98/2 project is likely to increase ONGC’s total oil and gas production by 11 per cent and 15 per cent, respectively.

Clearly, India is aware of the challenges it faces, and the growing pressure, direct or indirect, from the allies to take sides during geopolitical tensions. This also means India will need to stay firm and have a clear and comprehensive energy policy which it should keep tweaking depending on the situation.