Political Economy

As Brent Crude Creeps Around $80-Mark, Indians Could Soon Feel the Heat

Petrol, diesel prices have already risen by 69 paise since Monday, which is when oil marketing companies resumed their practice of daily price revision after the Karnataka poll freeze.

New Delhi: Petrol and diesel consumers could soon start feeling the pinch as state-owned oil marketing companies (OMCs) raise their prices on a daily basis to recoup losses incurred between April 25 and May 13, when they had put rate hike on hold because of the Karnataka elections, and also to keep pace with the renewed rally in the global market.

The benchmark Brent crude on Thursday edged up on supply concerns, creeping closer to the psychological mark of $80 a barrel – a level not seen since November 2014.

The trend has led global investment research firms to increase their wagers on the oil market.

According to a Reuters report, ANZ bank has said that benchmark Brent crude was “now threatening to break through $80 per barrel … (as) geopolitical risks continue to support prices, (and) an unexpected fall in inventories in the US got investors excited yesterday.”

US bank Morgan Stanley, too, raised its Brent price forecast to $90 per barrel by 2020, due to a steady increase in demand.

This trend in the global oil market could force the Narendra Modi government to roll-back excise duty on petrol, diesel, which remains staggeringly high.

Petrol prices have risen by 69 paise since Monday when the OMCs resumed daily price revision. Petrol was selling at Rs 75.32 a litre in Delhi on Thursday, up from Rs 74.63 on Sunday.

The OMCs had kept daily price revision on hold between April 25 and May 13, apparently on the petroleum ministry’s diktat, while campaigning for the Karnataka assembly elections was underway.

Brent crude futures LCOc1 stood at $79.32 per barrel at 0027 GMT, up 4 cents from the last close.

US West Texas Intermediate (WTI) crude futures were at $71.68 a barrel, up 19 cents, or 0.3%, from their last settlement.

According to agency reports, US crude inventories C-STK-T-EIA dropped by 1.4 million barrels in the week to May 11, to 432.34 million barrels.

ANZ said falling US inventories were “raising concerns of tight markets heading into the US driving season,” during which demand typically rises.

Not everyone bullish on oil market

But not everyone is bullish on the oil market. The International Energy Agency (IEA) said on Wednesday that it has lowered its global oil demand growth forecast for 2018 from 1.5 million barrels per day (bpd) to 1.4 million bpd.

The IEA said global oil demand would average 99.2 million bpd in 2018.

And although supplies currently only stand at 98 million bpd due to supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), the IEA said that “strong non-OPEC growth … will grow by 1.87 million bpd in 2018.”

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