DEMAND AND SUPPLY - GLOBAL

& INDIAN OIL INDUSTRY

IMPACT OF WAR
-Shikhar Bhardwaj
Div-C
MBA Core

1.Industry before the Russia-Ukraine con ict

Energy demand and emissions bounced back
to around pre-pandemic levels in 2021, reversing the temporary reduction in
2020 resulting from the COVID-19 pandemic.

Lets take the below graph as the demand graph of fuels before the con ict
i.e. 2021.

Lets take the below graph as the supply graph of fuels before the con ict i.e.
2021.
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2.Russia invades Ukraine:

The world’s fuel supply disrupts after the war starts as both Russia and
Ukraine were responsible for the great chunk of fuel supplied to the world
specially Europe and UK.

Sudden repercussions:
-Sanctions imposed on russia
-Distribution routes disrupted for both the countries.
2.1.Impact on global supply and demand:
By the mentioned repercussions it can be inferred that the supply of fossil
fuels decresed globally.

Graphically speaking, the supply curve shifted to the left.

There wasn’t much impact of war on demand but it was already rising in the
process of reversing the temporary reduction in 2020 resulting from the
COVID-19 pandemic.

So the change in the demand curve at the time of war looked something like
this:
2.2 Impact on global crude oil prices:
As a result of the above shifts in the demand and supply curves the price of
the fossil fuels rose in a signi cant pace.

The following charts shows the crude oil prices before and after the pandemic
respectively

@65.288USD/barrel before the war tensions:

@112.48USD/barrel just in 2 months of the war:

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3.Another story unfolding in India:

As the rest of the world was panicking and suffering from the spoils of the
war spreading to them in the form of costlier and insufficient fuel. After
suffering from similar forces, India got an opportunity which resulted in a
whole different story in Indian fossil fuels market.
- Responding to the sanctions, Russia began diverting oil supplies from its
traditional markets and started selling oil at discounted prices to countries in
Asia such as China and India.
- India saved over Rs 35,000 crore with discounted Russian crude oil till
December 2022.
- India even experienced an oversupply of gas in November as prices shot
through the roof. On account of high prices, customers in India reduced
gas buys, resulting in a surplus in the market.
- India bought 33 times more oil from Russia

3.1.Change in supply as a result of cheaper fuel:

With the cost-advantage factor, India purchased the crude oil and gases in
abundance, it could supply more fuel into the market resulting in the
rightward shift of supply curve.
3.2.Change in demand:
While the change in supply part was di erent from most of the countries, the
demand curve re ected the similar change as that of other countries. The
demand rise due to :
- Reversing of the temporary reduction in 2020 resulting from the COVID-19
pandemic.
- With surplus of oil reserves, India started to increase its oil exports, thus
resulting in rise in the demand. Exports of petroleum products from India
reached 62.7 MMT in FY22.
Due to these factors the rise in demand caused a rightward shift in the
demand curve.
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3.3.Impact on prices

The prices of fossil fuels in Indian market were affected by the war forces
only in the beginning of the war but then cam to normal range.
However the discounted oil helped in the stopping of rising fuel prices, but
still remained almost at the similar levels because:
- The rise of supply was compensated with the rise in demand and therefore
there wasn’t much change in prices
- Prices were regulated by the government.
SUMMARY:

GOLDWYN: The Russian invasion of Ukraine has permanently redirected

the flows of natural gas, crude oil and refined products.
Russia's war in Ukraine is bringing about a big and lasting change in the
world's oil markets. This is causing new alliances between di erent countries
based on their geopolitical interests. Experts believe that this situation is
similar to what happened during the Arab oil embargo in the 1970s.
Prices of crude oil in 2022 swung from the 14-year high of $140 per barrel in
March to around $80 per barrel in December.
The world saw a great deal of change in demand and supply of fossil fuels.
The leading powers(countries) su ered while the third world countries like
India and China enjoyed a opportunity in the fuel market.
This also summarises that how developements in a particular part of the
world has a global impact.
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