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Explained: Covid-19 surge halts crude rally; Indian OMCs still likely to hike prices post polls

A sharp spike in Covid-19 infections in India and Brazil as well as in some major European countries has negatively impacted the demand outlook for crude oil.

Written by Karunjit Singh , Edited by Explained Desk | New Delhi |
Updated: April 20, 2021 7:26:44 am
Higher crude oil prices push up the cost of India’s imports and hurt the marketing margins of public sector Oil Marketing Companies (OMC) which have not hiked the price of petrol and diesel since late February. Express photo by Jasbir Malhi

A week-long rally in the price of crude oil has been stalled by rising Covid-19 infections with Brent crude falling about 0.5 per cent to $66.5 per barrel on Monday.

Brent crude had risen from $62.15 on April 5 to about $67 per barrel on April 15 as the demand for oil strengthened as US and Chinese economies started showing signs of economic recovery.

We examine the recent trend in crude oil prices and its impact on India.

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What caused the rally in crude oil prices?

New government data in the US pointing to lower unemployment claims and rising retails sales coupled with China posting an 18.3 per cent GDP growth in the quarter ending March raised the demand outlook for crude oil boosting prices. New economic sanctions on Russia by the US had also helped push up prices according to experts as they raised the issue uncertainty in trade with Russia.

What is curbing the rally?

A sharp spike in Covid-19 infections in India and Brazil as well as in some major European countries has negatively impacted the demand outlook for crude oil. A rise in the number of active oil rigs in the US as a response to higher crude oil prices has also contributed to halting the rally in oil prices. New Covid-19 infections in India hit a record high of 273810 on Monday.

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How does this impact India?

Higher crude oil prices push up the cost of India’s imports and hurt the marketing margins of public sector Oil Marketing Companies (OMC) which have not hiked the price of petrol and diesel since late February as West Bengal, Tamil Nadu, Kerala and Assam headed to state elections. OMCs have revised the prices of petrol and diesel only four times since February 27, cutting the price of both petroleum products by about 75 paise per litre even as the price of crude oil has witnessed high volatility, rising to $70 per barrel on March 8 March and falling below $61 on March 23.

The prices of petrol and diesel, however, continue to be at near-record high levels in India as the central government maintains sharp hikes in central taxes on auto fuels imposed in 2020. The price of petrol was Rs 90.4 per litre in the national capital on Monday, while the price of diesel was Rs 80.73 per litre.

Experts have noted that OMCs are likely to raise petrol and diesel prices once elections are over to restore their marketing margins to normative levels and may even be slow to pass on the benefits of future falls in the price of crude to consumers to make up for lower marketing margins during the election period.

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