Updated: June 8, 2021 10:02:23 am
Crude oil prices have hit a two-year high with Brent crude rising above the $71 per barrel mark on Wednesday hitting the highest level since May 2019 as key oil-producing countries announced that they would adhere to plans entailing a gradual increase in crude oil production. We examine what has pushed crude oil prices up and how it is likely to impact Indian consumers.
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Why are crude oil prices rising?
Crude oil prices have been rising steadily since the beginning of 2021 when Brent Crude was trading at about $52 per barrel buoyed both by hopes of improving demand due to economic recoveries across geographies as well as supply cuts by key oil-producing countries. The Organisation of Petroleum Exporting Countries extended supply cuts made in 2020 when crude oil prices had reached a low of under $19 per barrel through the first five months of 2021. Saudi Arabia notably made an additional voluntary production cut of 1 million barrels per day between February and April of which only 250,000 barrels of production has been restored in May and 750,000 barrels of production is set to be restored over June and July.
Beside the reversal of the voluntary cut by Saudi Arabia, OPEC+ is set to restore production of 350,000 barrels per day in June and 441,000 barrels per day July.
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Experts have noted however that the gradual withdrawal of cuts is unlikely to have any significant impact on prices as demand for petroleum products increases as demand increases spurred by increasing economic activity.
A potential breakthrough in international efforts for a new Iran nuclear deal which would see international sanctions on Iranian oil removed would also not have a major impact on oil prices according to OPEC which expects that any increase in crude oil production from Iran would happen gradually and would not destabilise crude oil prices.
How are high crude oil prices impact India?
Rising crude oil prices have contributed to petrol and diesel prices rising to record high levels across the country. The price of petrol has been hiked by Rs 10.8 per litre since the beginning of the year while the price of diesel has been hiked by Rs 11.5 per litre in the same time period.
Officials at oil marketing companies have however noted that even current record-high prices are lower than what refiners should be charging in line with international prices and that prices are set to rise further unless there is a cut on levies on autofuels or a fall in crude oil prices. The prices of petrol and diesel are benchmarked to a 15-day rolling average of the international prices of the petroleum products.
State and central taxes account for about 58 per cent of the pump price of petrol and 52 per cent of the pump price of diesel in the national capital on Wednesday. The central government had in 2020 hiked central excise duties on petrol by Rs 13 per litre and those on diesel by Rs 16 per litre to shore up revenues as economic activity fell due to the pandemic.
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