Countries such as India that are dependent on imports to meet their oil needs are particularly vulnerable to price volatility. It’s thus no wonder that the country has been a strong supporter of a price band for crude oil.
India’s year-old suggestion of an oil price band to reduce volatility in the crude oil market has won the backing of Nigeria, Russia, France, Japan, South Korea and the US, but experts say the proposal may be difficult to implement in the absence of a broader agreement between oil producing and consuming nations.
The proposal was discussed at a Group of Eight (G-8) energy ministers meeting held in Rome on 24-25 May, which was also attended by representatives of oil producers and consumers. Italy’s Eni SpA, one of the large crude oil producers, favoured a $60-70 price band per barrel of crude.
It is learnt that while Russia and United States are in favour of price stability, Nigeria is in favour of a price band. While Nigeria is a member of the Organization of Petroleum Exporting Countries (Opec), Russia rivals Saudi Arabia, which is the world’s biggest oil exporter and de facto leader of the cartel.
A year back, the then finance minister P. Chidambaram, the present home minister, proposed the oil price band at an Opec meeting.
Let’s however not congratulate ourselves right away on this – it’s way to early. The price band may become a reality only when Opec — whose members include Nigeria, Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela — accepts it and a broader agreement is in place between oil producers and consumers. And getting these guys come to an agreement on anything other than a price hike or a cut in production is going to need some serious pushing and oh well, lots of luck