Why petrol and diesel prices can touch an all-time high again

Fuel prices in India are once again inching up. After touching an-all time high of Rs 86.24 on May 29, petrol in Mumbai had come down to Rs 82.94 in the first week of July – Rs 3.30 down. However, gasoline price has once again shot up in the financial capital to Rs 85.

In the last eight months, the petrol price in Mumbai has shot up by Rs 7.13. This year on January 1, the price of gasoline in the financial capital was Rs 77.87.

Why petrol and diesel prices can touch an all-time high again

Petroleum prices in India are linked with the crude oil cost in global markets. And the scenario in global markets is not looking good with Iran – which is the second biggest oil exporter to India and the third-largest oil producer in the OPEC Group – facing an inevitable crisis after the United States announced a fresh sanctions effective November 1.

Not only that, Saudi Arabia, which is the world’s second largest oil producer, too has started cutting production just a month after agreeing to increase the output. In July, it cut its oil production by an average of 200,000 barrels per day – a move that is likely to create oil shortage in global market that in turn will drive up the crude prices. These two global events – Iran crisis and Saudi Arabia – are set to disrupt the global crude oil prices once again.

Earlier, France-based BNP Paribas had said that because of the US sanctions on Iran, oil production from the Organization of the Petroleum Exporting Countries would come down from an average of 32.1 million barrels per day in 2018 to 31.7 million in 2019.

In May, Bank of America Merrill Lynch observed that the deteriorating conditions in Iran may push the crude oil prices to USD 100. The bank said that the Brent futures, which was hovering around USD 77 then, would reach USD 90 in the Q2 of FY 2019 due to significant cut in world inventories.

The report said: “Looking into the next 18 months, we expect global oil supply and demand balances to tighten, driven by the ongoing collapse in Venezuelan output. In addition, there are downside risks to Iranian crude oil exports. Plus we see a high likelihood of OPEC working with Russia in 2019 to set a floor on oil prices.”

Iran crisis started after the US President Donald Trump in May pulled out of a nuclear deal with the country and announced fresh sanctions against it. The US has told India and other countries to cut oil imports from the Gulf nation to “zero” by November 4 or face sanctions. Any adverse movement in global oil market will have direct bearing on India as the country imports 80 per cent of its total oil requirements.

The oil producing group’s total oil production grew in July. In its monthly report, OPEC said that the group’s total output in last month averaged 32.32 million barrels a day – up 41,000 barrels a day from June.

The increase in output in last month was up after oil producing countries in June had agreed to lift the cap on production which was put in 2016 to prop up the prices of crude which had fallen by more than half due to excessive supply and booming US shale production.

The move to raise the production had come after the US, China and India urged OPEC countries to increase the supply to prevent an oil deficit that could undermine global economic growth.

source: businesstoday