Ahead of Gujarat, Himachal polls, Centre has a new headache: Oil prices at $60 a barrel
, TNN|
Oct 28, 2017, 01.14 PM IST
Fuel prices are likely to rise further and cause the government political headache during the election season as global benchmark oil price appears headed for a 'new normal' at $60 per barrel. North Sea Brent, the global benchmark for oil trade, on Friday settled at $59.30 per barrel, a tad lower than the $59.55-mark it had touched on Thursday, the highest level since July 2015.
India meets 82% of its oil requirement with imports. Brent-benchmarked crude makes up about 28% of these imports, while the remaining 72% consists of cheaper supplies benchmarked to 'sour' grades from Dubai and Oman.
The 'Indian basket'— euphemism for the mix of crude imported by India — stood at $56.92 a barrel on Thursday and $56.79 on Wednesday. Since there is a day's lag, Friday's quote will be available on Monday. Technically then, there's some headroom till the Indian basket reaches the $60-mark.
But due to the daily revision, consumers now feel the pinch every time the price of crude rises, unlike in the past when a spike in crude prices for a day or two would not matter much due to the fortnightly revision.
Consumers have been steadily paying more since August. Till October 3, when growing public anger against high taxes forced the government to cut excise duty on fuels by Rs 2 a litre, petrol price had jumped by Rs 7.8 per litre and diesel by Rs 5.7 to hit an all-time high in Delhi.
The government had cumulatively hiked excise on petrol by Rs 11.77 per litre and on diesel Rs 13.47 a litre between November 2014 and January 2016 to soak up part of the benefit of tumbling global oil prices. So if oil prices continue to rise further, consumers will still want more tax cuts.
The government may find it hard to deny this without inviting public ire when polls in Gujarat and Himachal Pradesh are in offing. But any more tax cut could upset the government's math when it has just announced a massive stimulus package to revive the economy. The excise cut will reduce government revenue by Rs 13,000 crore in the remaining half of the current fiscal.
The best hope could lie in factors such as an increase in US crude inventories and high US production and exports. These can ease some of the pains form a tightening oil market as Saudi Arabia pushes to extend the Opec production cut deal into 2018 with Russian support. But the reprieve is likely to be short-lived. Clearly, the writing is on the wall.
India meets 82% of its oil requirement with imports. Brent-benchmarked crude makes up about 28% of these imports, while the remaining 72% consists of cheaper supplies benchmarked to 'sour' grades from Dubai and Oman.
The 'Indian basket'— euphemism for the mix of crude imported by India — stood at $56.92 a barrel on Thursday and $56.79 on Wednesday. Since there is a day's lag, Friday's quote will be available on Monday. Technically then, there's some headroom till the Indian basket reaches the $60-mark.
But due to the daily revision, consumers now feel the pinch every time the price of crude rises, unlike in the past when a spike in crude prices for a day or two would not matter much due to the fortnightly revision.
Consumers have been steadily paying more since August. Till October 3, when growing public anger against high taxes forced the government to cut excise duty on fuels by Rs 2 a litre, petrol price had jumped by Rs 7.8 per litre and diesel by Rs 5.7 to hit an all-time high in Delhi.
The government had cumulatively hiked excise on petrol by Rs 11.77 per litre and on diesel Rs 13.47 a litre between November 2014 and January 2016 to soak up part of the benefit of tumbling global oil prices. So if oil prices continue to rise further, consumers will still want more tax cuts.
The government may find it hard to deny this without inviting public ire when polls in Gujarat and Himachal Pradesh are in offing. But any more tax cut could upset the government's math when it has just announced a massive stimulus package to revive the economy. The excise cut will reduce government revenue by Rs 13,000 crore in the remaining half of the current fiscal.
The best hope could lie in factors such as an increase in US crude inventories and high US production and exports. These can ease some of the pains form a tightening oil market as Saudi Arabia pushes to extend the Opec production cut deal into 2018 with Russian support. But the reprieve is likely to be short-lived. Clearly, the writing is on the wall.
(This article was originally published in The Times of India)
