The growing uncertainty in the global economy over the Ukraine crisis and its disruption to trade and shipping services following sanctions on Russia, the Brent crude oil futures jumped to $130.89 per barrel early on Monday, the highest in more than 14 years.
This is set to significantly increase India’s import bill on crude oil in the coming weeks. India imports over three-fourths of its oil needs.
Oil prices soared above $130, their highest since 2008 on Monday, as the risk of a US and European ban on Russian oil imports and delays in Iranian talks triggered tight supply fears, after having climbed over 20% last week.
Crude prices posted their highest weekly gains since the middle of 2020. Brent prices gained 21 per cent, and WTI posted 26 per cent gains. Russia exports 4 million to 5 million barrels of oil daily, making it the second-largest crude exporter in the world after Saudi Arabia. We expect crude oil prices to remain firm amid geo-political tensions and rising demand,” said Rahul Kalantri, Vice President Commodities at Mehta Equities.
Global crude oil prices have risen from around $80 per barrel on November 4, 2021, to over $130 per barrel today, an increase of about 60 per cent, since the last revision in retail prices of petrol and diesel in India four months ago on November 4, 2021.
The last revision in retail prices of Petrol-Diesel in Delhi took place on December 1, 2021, when the Delhi Government announced a sharp reduction in VAT.
A senior official had told NDTV on March 3 that price revision necessary in the retail price of petrol and diesel to offset the rise in crude oil prices since November 2021 was from Rs. 8/litre to Rs.10/litre. The rise in crude oil prices over the last three days has further increased the pressure and financial burden on Indian oil companies.
Sources say the increase in the retail price of petrol and diesel could be minimised if the government approves additional release of crude oil from its oil reserve stock. The other option is to reduce the excise duty and the Value Added Tax.
Crude oil prices have been steadily increasing even before the Russian invasion of Ukraine.
According to the petroleum ministry data, the price of Brent crude averaged $87.22/bbl during January 2022 as against $74.10/bbl during December 2021 and $54.84/bbl during January 2021.
The Indian basket crude price averaged $84.67/bbl during January 2022 against $73.30/bbl during December 2021 and $54.79 /bbl during January 2021.
What has not helped is the crash in the rupee to a record low on Monday, with the currency depreciation likely to hurt the import bill further in internation markets.
Global Forecasting Agency Oxford Economics has warned that high oil prices and inflation will weigh India’s growth outlook.
Oxford Economics its latest assessment report last week said, “with global oil prices now expected to remain above $100 per barrel until the early stages of H2 2022, due to Russia’s invasion of Ukraine, and other commodity prices also pushing higher, India’s growth is likely to remain relatively subdued throughout most of 2022”.
According to India Ratings and Research, “A $5/barrel (bbl) increase in crude oil prices will translate into a $6.6 billion increase in trade/current account deficit.