Weak Demand, Strong Supply May Force Oil Market Reset
In this week's The Core Report Weekend Edition, Govindraj Ethiraj speaks with Atanu Mukherjee, CEO at Dastur Energy that despite resilient consumption, rising output could trigger supply corrections and test producer discipline through 2026.
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Atanu, it's a pleasure to speak with you once again and thank you for joining me on this India Energy Week 2026 special series that we are doing in conversation with leaders in the energy space, talking about the trends as they see for the current year, which of course is interesting in more ways than one. So let me ask you a somewhat broad question to start with. How are you seeing overall global energy trends in 2026 from where we were as we came into 2026 and where we are today looking ahead?
Right, Govind, it's nice to see you again, nice to talk to you and I think that's been interesting here in the past year and I think that going forward we see quite a few changes in terms of the energy markets, both from a demand supply perspective, especially so in the oil and the gas markets and then more so in the oil markets. We see going forward, it started sometime in 2025, in terms of basically supply exceeding demand, right? And so you're seeing that probably the supply exceeded demand by over 1.5 to 2 million barrels per day, okay?
And so that's going to find a place to go, right? And so obviously that affects price and mechanisms of storage and reroutings. And so I think that also obviously led to the softening of the oil prices, crude prices, right, around the globe.
And I think coupled with that, that OPEC countries have not been really particular in terms of limiting supply, results in a continuous situation of kind of like price, which is going downward, right, has gone downward. Probably going forward, we will see that crude supplies will remain elevated over and above the demand. I guess the demand that we see globally may increase by about a million barrels a day, but the supply is probably going to estimate its range from two to three million barrels a day, unless what you call some kind of supply discipline comes into play.
And so that'll nudge the price towards between 50 and $60 a barrel on the Brent side, which is kind of like on the margin. So if you look at typically oil producers, $50 a barrel is the break-even price. Shale producers, about $60 a barrel.
So I think on the margin, and so I think from a demand side, from a price side, it's quite friendly to the consumer. But from a supply side, that defers investments, right, which are necessary, right, in the future. So by 2026, I think we'll see less of volatility.
It'll see a more depressed price regime in general going forward, unless something unusual happens. But again, I think on the longer term, because that depresses investments, which depresses replacement capacity, right, in the future, prices are likely to go up in the future. So that's how we kind of like see it on the oil side.
And similarly, on the gas side, we see a short-term elevation in the global markets, in the gas price, because of supply not keeping up with the demand. But I think at the same time, the United States supply is coming up significantly. And if you look at international markets of gas supply, especially to LNG, there is obviously a significant amount of gas LNG capacity is going to come in over the next five to six years, going up by probably 35% to 40% or more.
But that does not necessarily mean that the price of LNG will go down significantly, because the demand side drivers also are moving up, especially so Europe, right, which kind of like, you know, after the 22, 23, you know, regime, the time regime, you know, it had a capacity influx of about 75 million tonnes or something, right. So you add that, you add the capacity increases that are happening over the next five years, there'll be some what you call nudging downward in the prices, but in general, prices of LNG, you know, will remain probably stable, volatility will decrease, but in general, the supply and demand will be balanced over time. So that's how we see it kind of like going forward in terms of both the gas and the crude prices and the crude supply and demand scenario.
Right. And let me pick on a few geopolitical events of the last year, including, let's say, the punitive tariffs on countries like India for importing Russian oil. Now, my question is not on the politics, but the quantum of oil itself.
Now, what's your sense in terms of how oil flows could change or energy flows could change, given what we've been seeing in the last few months? And that includes, of course, most recent development being the U.S. attack on Venezuela and an attempt to take over, in a manner of speaking, the country's oil production.
Yes. So I think that even with punitive tariffs, you know, keep everything aside, even if you take punitive tariffs or tariffs that's been imposed on India at those elevated levels. Still, you are better off, you know, importing Russian and other oil at the prices that you get, because the advantage you get from that in terms of the import prices and the total volume of dollars, that advantage you get is way more than the export disadvantage you get even with the punitive prices.
So I think just from an economic perspective, you know, it looks something which is not very good in terms of high export tariffs, but it doesn't really affect that much, right, from an economic perspective. So that's one, what we call, anchor, if you will. So I think, I'm not saying that, suggesting that India continue, what we call, just importing Russian oil, but yes, it should continue to export all alternatives and continue to, what we call, evaluate the Russian option as it evolves based on price and volume dynamics right across the world.
So that's the way we should look at it, knowing fully well that the punitive effect of tariffs does not commensurately affect, right, the advantage you can get in terms of volume imports. So that's from point number one. Point number two, as you might know, is some developments that have happened in the past, what we call, you know, past few weeks in terms of Venezuelan oil.
Certainly that's an opportunity. India has always been a consumer of Venezuelan oil since refineries are well engineered, especially some of the heavy refineries of Jamnagar are very well engineered for handling Venezuelan oil. And I think in 2024, there was an exception made to give, you know, Reliance imported quite a bit of barrels from Venezuela.
So I think over time that should increase, but again, we must understand that the Venezuelan oil infrastructure in terms of production is still at a very, in a stage where it requires a lot of investment to get it to capacity or output capacity, which is significantly effective in terms of imports. So by the time it's going to affect you in terms of, you know, imports of Venezuelan oil as an option, it's going to be a while, right? And so the effect of these developments probably in 2026 is going to be marginal, right?
But in the longer term, right, it's also an option that India can draw upon. And so it better balances its basket in terms of crude supply with respect to price and volumes, which is very good for India.
Right. And if I can get a sense from you on the demand side, I mean, you did touch upon it already, but when you look at demand, which as you said, is now lower than supply, and there's potentially a 3 million barrels per day gap, including what the International Energy Agency has projected. How do you see that impacting not just prices, but the very flow of production and distribution of oil in 2026?
Yeah, so I think certainly apart from prices, at some point of time, I think you will see a reorganisation of the supply, right? Especially I would think from the opaque plus and opaque nine, kind of like the coalitions. Because right now, if you look at it, the opaque supply has gone up in 2025, and also in 2026, that remains at elevated levels.
And opaque has always been the swing producer, right, in terms of balancing supply and demand, which has not happened because of multiple incentives and decisions that different opaque nations took. I would imagine that as supply remains elevated compared to the demand. And I'll just clarify this.
Demand has been moving the way it is. So all the geopolitical events that's happened till now has not destroyed demand, right? It's just reoriented the efficiency of supply, right, in terms of rerouting from different countries, right?
And of course, it's also broken the discipline which was there. So therefore, at some point of time, I think as supply continues to exceed demand sometime in 2026, and nobody can predict the time, I would imagine that you will have a reduction in supply from the swing producers. But again, that'll be complicated by the supply that comes in from Guyana and Argentina, and potentially some of them from Venezuela, right?
So how it evolves needs to be seen. But it is likely that there'll be supply corrections happening over time, right, to bring more or less all these, you know, the demand supply and balance and price to a level which is sustainable, right, from a perspective of operation by these different countries and companies, as well as for future investments as required.
And if I were to come to India and look at India's refining capacity in the context of total crude oil consumption that includes imports, there is some capacity addition that's going on in refining, but increasingly there is a focus on downstream petrochemicals. And of course, there are exports. How are you seeing this equation evolve or shift or change, if so, in the coming year?
So I think, you know, like I have always observed and said is that increasingly, because of the dynamics of different kinds of elements of transportation systems and use of different kinds of commodities for general social use, we are seeing a movement more towards what I call as conversion rather than combustion. Right.
And so, yes, you will have combustion and that will continue to grow. But I think there'll also be a corresponding demand side and a supply side corresponding balancing of increasing conversion, right, to petrochemicals. Right.
And so refining will be more integrated, right, as we move forward in terms of combining combustion fuels, right, combustion commodities, as well as conversion commodities, which is basically plastics or petrochemicals. And I think the better we integrate that, the more efficient you are in terms of production routes and optimising the supply, optimising the production across different categories. And I think that the movement of refineries is going to be, and that's what you're seeing also, that is more of how do I combine combustion products with conversion products with the right kind of crude slate so that I am able to optimise my GRM, so the refining margins, and also supply to the market, which is evolving in both the directions.
Right. And so I think that's what, you know, I guess what you're referring to, and that's what is happening increasingly in refineries, and especially so in heavy refineries, which India is, you know, is a big heavy refinery base, and which will continue to move in that direction. And I think it's very healthy for the nation.
And what are the kind of trends that you're seeing in Asia, in Asia, in the same context? And if I can expand that question, so is India following its own trends, which are driven by a host of factors, including available supply of crude, domestic demand?
Or are there some trends that are similar to other parts of the region? Because also, as I can see, a lot of the combustion and conversion capacity, as you refer to, is only coming up in Asia, Africa, and Middle East, and nowhere else in the world.
Right, right. And I think, mostly, I think, in Asia, and I'll kind of like point out specifically, from a volume of capacity perspective, and the type of capacity, which is basically heavy, or lighter, which is less complex, the concentration of capacity that can grow and is growing is going to be India, instead of 250 million tonnes, going to 300 million tonnes, probably in refining capacity, mostly heavies. China, which is a pretty heavy refining capacity, about 18, 20 million tonnes, rivalling the million barrels per day, rivalling the United States.
Others are smaller, what do you call, heavy producers, which make a difference. But I think these are the ones which can make the biggest difference. And I think if you have these as anchor, what you call regions, which are, you know, creating the production or producing commodities, which can not only be absorbed by the domestic, what we call demand, but also be able to support demand from outside of these regions, like, for example, you know, Africa, right, right, for example, Europe, right.
And I think that's an opportunity that is developing, and it has been happening, right, in the past, what you call one year, as you see these, these changes in geopolitics, that increasingly you have these crude reroutings to refinery, heavy refineries, which could then be exported in terms of commodities outside of India, right, into Europe, for example, into Africa, for example. So I think, you know, India and China, just because of the volume and the capacity and the experience base that they have got, are probably the best positions, right, in terms of exploiting both combustion and conversion commodity, you know, demand cycles and demand evolutions, not only within the regions of the nations, but also outside, and of course, contributions from others, right. And I think that's what I see, that's what we see, right, as we move forward.
And if I can come back to supply for a moment, you know, we touched upon geopolitical shifts, including, as triggered by the Russian invasion of Ukraine, America's attack on Venezuela, and the taking over, again, in a manner of speaking, the oil, oil production there. What is going to change because of all of this?
So and and let me supplement that for countries like India, for example, let's say we were looking more at looking at a balance of thrust on renewables plus traditional energy, that's oil and gas crude, and the geopolitical shifts could cause or seem to be causing some shift in strategy. And perhaps that's happening in other parts of the world too. I would be keen to know how you see how you are seeing this.
So I think, you know, if you look at it, as we see it, as I see it, the geopolitical events, if you look at it, in the in the specific, specifically in the crude markets or the oil markets, have not created that kind of volatility that usually it creates, right? If you look at it, it's tempered down, right?
The volatility, a lot of geopolitical events have been happening, but it's not really the volatility that we expect out of geopolitical situations. That's because the geopolitical events have found a way of, have made the suppliers and the demand side consumers to find a way to reroute and reorient supplies into demand centres. You know, I would say bypassing, but by but by looking at ways around what you call these geopolitical barriers that may emerge, right?
And that has capped volatility to a large degree. And therefore, the trading mechanisms, the instruments and the logistics right around it become of critical importance, right? In terms of maintaining the supply demand balance, even in the face of geopolitical shifts that are happening, which is not the case earlier.
This is this is very, I'm saying unique, but it's different, right? This time. And I think that has kind of like synthesised into better logistical efficiency, better reroutings of supply, better able to match supply with demand in different zones and better able to execute different kinds of mechanisms, instruments of trade, which allow that to do so.
So that I think will evolve and keep growing. And I think that volatility will be probably less. That's one.
Having said that, I think certainly, yes, you know, renewables and other energy sources are a complement to a lot of what you call these areas, especially in power generation. And so renewables will help, but renewables will not be the the saviour or will not be something which can significantly substitute the role of crude and gas in power generation. And of course, in commodity production, it's very, very difficult.
So it'll have a limited impact, I believe, in terms of how it is able to substitute these other traditional commodities or energy commodities. But we'll certainly have some effect, right? But I think more importantly, though, I think it's important to understand that if you increase renewables, and this is the counterfactual, the likelihood or the need for any region or nation, let's say for India, to be able to continue with renewables in a reliable, affordable manner demands more amount of farming fuel resources like gas, for example.
So you might say that I will substitute with renewables. Not really. You will.
But for doing so, you will require more gas, right? Because you got farming resources, you require more coal for that matter, right? Because farming resources.
So and to keep it affordable and reliable. So yes, renewable has got an impact, but not to the degree that people think about that it's a substitutional resource, you can substitute right crude or gas and other what you call similar commodities, you know, at substantial levels.
And if I were to go a little deeper, you know, on the demand side, again, in India now, where you have been working on several projects over the years, how are you seeing some of the technology inputs, or innovations or shifts, which could influence or affect or change things around when it comes to energy demand at a broad level, as well as some of the specific areas that you're familiar with?
Right. So I think one of the biggest areas that I think of is that, you know, gas is a very, very important, you know, energy commodity for any application around the world, including India. But then again, you know, different nations, different countries have different price sensitivities of gas, and India doesn't have gas.
So we have to import LNG. But if you look at LNG, you know, LNG is a good, how should I put it, a good insurance policy, right for fuel. Let me just clarify that, you know, we have about 50-55 million tonnes of LNG capacity.
If you look at the capacity utilisation of the LNG, what you call gas import infrastructure that we got, it's probably about 35-40%. So from a, you say what, that's like, way too low. Yes, that is correct, because the price and the economics of LNG, right, for general application doesn't permit it to be absorbed in larger volumes.
But during situations that arise, which may be a drought, or it may be a heat wave, or it may be a, you know, geopolitical situation, which demands, right, a lot of LNG to be gas to be gotten in, I would require the LNG capacity at that point of time. So LNG capacity to me is an insurance, it's a flexible option that I create in India, which, you know, weathers me through the storms, right, which I want. That being said, right, we must be able to complement things in technology space to be able to create fuels which are similar to gas.
And I keep on saying that, you know, India's biggest endowment is coal, right. And so if you can convert coal, rather than combust coal into gas, which is very, very possible, right, at economics, which makes sense for the coals that we have in India, it can complement, supplement, and substitute a lot of the LNG import requirements that we might have, right, or the gas requirements that we might have through imports, through gasification technology. So that's one direction that we think the government is embarked upon for some time, and we continue to support that.
And we think that's a big thing. So you can have, you know, synthetic natural gas as one mechanism to what you call drive, you know, gas use forward. So that's one area we think is very important.
The second, I think, has got to do with, you know, the whole demand for power, the demand side of power. If you look at power, it's not just the traditional demand of power by you and me, consumers, but demand for power with the onset of artificial intelligence, you know, these data centres, hyperscalers. So if you might know, these things have started happening, you know, $15 billion of investment by Google, right, into entrepreneurs by that area for hyperscalers.
Same thing with Microsoft, you know, these are very large, large loads, right? And you cannot supply that kind of load with the traditional grids that you have got, leave alone just by renewables. So you have to engineer what we call as power sources, the power grids, which are specifically aligned towards supporting these kinds of data centres, which are very hungry consumers, very high volatile concentrated demand.
And so I would think that, and we're working on that, is how do you engineer, right, and design such artificial intelligence corridors, power corridors, which will be a combination of generation of power from, you know, obviously, you know, coal, probably coal gasification based gas, probably outside gas and renewables combined together along with storage. So that's another technology area that we see that is going to evolve and evolving as we see, we see that happening in the United States very, very strongly. We see that happening in China to some degree, and it will happen in India for sure.
So that's another demand side and technology development, which I think will have a, you know, big impact, right, in terms of the energy and the demand side and the supply side of the economics of the whole thing.
And you talked about AI. And I guess that's you know, the mandatory question now, in most or at least of my conversations with business leaders.
So yeah, is going to help a lot in many areas as including as you talked about the management of energy supplies and management of energy demand and supply for that matter. Are you seeing are you are you seeing any substantive or substantial changes in the way the energy industry works because of AI in itself or and and or what is it that we could be looking at as we look at the horizon?
So yes, there are two things that that I just want to kind of like call out here. One that I just alluded to that AI, the future of AI right in India or any other place in the world, is gated on power demand. So unless you have the right kind of high availability, high quality, high volume, high concentration power, AI cannot expand.
AI hyperscalers or data centres cannot expand the way, right, they are destined to or they're planned to, right, given the structure of power systems. So that's point number one, that we need to really engineer these kind of corridors. Second point is the fact that and you know, it's got to do with how do we integrate diverse sources of energy, right, for generating power, which includes renewables, which includes gas, which includes coal, which includes nuclear, which includes, you know, not generator but storage systems.
How do I combine this together, right, in the most effective manner to give you, the consumer, the lowest cost of power, which is affordable to the best possible way and reliably and in abundance. This is a problem that is being solved, is how do you make that grid more intelligent to be able to integrate all this together. So the technology of integration using AI, using artificial intelligence and intelligent systems is going to be primary, right, to make this happen and it's already started happening in some parts of the world and that's what I'm working on a couple of things in the United States.
We will see that happening, right, in different parts, speculate that it's slower because grid is a very large, complicated, complex, what you call amorphous infrastructure, right. To make technological changes to move it forward takes a little time but that recognition is there that if you don't integrate these using intelligent technologies, you know, which combine these different sources to give you the best it's going to be very difficult to maintain the kind of demand and supply trajectory that's required going forward. So I think that's what we see going forward.
Last question. So as you look back at 2025 and into 2026, what are the one or two things that surprised you in whether in terms of developments, events, technology or let's say in terms of audacious plans or and as you look at 2026, do you feel that there could be any of these things could really play out or could have an impact on the way the energy world is going to evolve or move from here?
Certainly yes and I think one of the things that what kind of like surprised me to some degree was the fact that there's a recognition now at a very large scale that to solve the world's energy problems and also make it as clean as possible, renewables alone cannot do it. This is a broad recognition across swathes of population, across nations, across political regimes. This is a reality and we kind of talked about it for quite some time but we didn't expect this to happen so fast in 2026 and so now you might have seen that people are talking about how can we make energy more affordable, how can we make power more affordable and they saw this whole you know situations of Germany and UK and mostly European countries, power prices going through the roof in a period of 10 years and so the people recognise that this is not going to solve the problem. So the question then becomes how do I really take different sources of generation of energy especially electric power and make it affordable, abundant and clean.
So the question became not to make it clean at all costs and net zero at all costs but to make it how much clean or clean enough right so affordability, reliability and abundance is maintained. So that's one you know I think a fundamental change right in terms of thinking and policy that's one thing. The second thing I think that kind of like surprised or kind of like you know took me a little off guard was you know typically we've been used to you know geopolitical disturbances or events leading to significant disruptions and volatilities you know which was not the case if you look at it right last year which is not the case there were significant pronouncements, events, disruptions but the system configured itself around the different elements to be able to match right the consumption patterns and the supply patterns in a way which did not create those kind of spikes that we are typically used to and so from that perspective there's a lot more of integrated you know integration that happened right over time over the last year that we saw which is a goodness I think in terms of how it's going to evolve going forward.
So I think two things right one is that you know you need to have renewables but that's not enough you we need to have a complementary set of resources to be able to create really a good energy system it's not about just one element and second is how do I manage volatility right by combining supply and demand side from different regions along with logistics and mechanisms of trade which allow us to subdue volatility but at the same time make sure that disruptions don't happen to the extent that they used to be so I think those two things kind of like interesting.
Atanu it's been a pleasure speaking with you thank you so much for joining me today.
Absolutely Govind pleasure speaking to you too thank you.
