Brent hovers around $121/bbl after nearing all-time high levels
Premium- During its early trade on Monday, Brent crude oil hit a high of $139.13 per barrel. The all-time high of Brent crue was recorded in July 2008 at $147.50 per barrel
NEW DELHI : Crude oil prices approached their record high levels on Monday over fears of a ban on Russian oil and delay in the Iran nuclear deal.
During its early trade on Monday, Brent crude oil hit a high of $139.13 per barrel. The all-time high of Brent crue was recorded in July 2008 at $147.50 per barrel.
Prices have, however, declined after touching multi-year high levels. Around 7.10 p.m., the May contract of Brent futures on the Intercontinental Exchange (ICE) was at $121.37, higher by 2.76% from its previous close.
The April contract of West Texas Intermediate (WTI) on the NYMEX was at $117.78, higher by 1.82% from its previous close.
Prices soared after US Secretary of State Antony Blinken during an interview on Sunday said: “We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil, while making sure that there is still an appropriate supply of oil on world markets."
Rahul Kalantri, Vice President, Commodities, Mehta Equities said along with the concerns over a likely ban on Russian oil, delays in the potential return of Iranian crude to global markets also lifted the prices.
"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," he said.
International Energy Agency's (IEA) announcement on late on Friday evening (March 4) that its member countries will release 61.7 million barrels of oil, higher than the initial commitment of 60 million barrel, failed to soothe prices. IEA member countries unanimously agreed on March 1 for an initial emergency response plan to alleviate the increasing tightness in oil markets resulting from Russia’s invasion of Ukraine.
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A recent report by Kotak Institutional Equities said that the IEA's announced release may not be sufficient to offset an impact to Russian exports.
The spiraling oil prices come as a cause of concern for India as the country imports 85% of its oil demand. The incessant rise in global crude prices have lifted the Indian energy basket, comprising of Oman, Dubai and Brent crude. It was last recorded at $111.61 per barrel on March 4, according to data from the Petroleum Planning & Analysis Cell of the Ministry of Petroleum and Natural Gas.
Although, the increase in crude oil prices has not been transferred to the consumers so far as the retail fuel prices have been unchanged for the over three months now on the buildup to the ongoing state assembly elections. However, market experts believe, as the elections on Monday, retail prices of petrol and diesel will sharply increase going ahead.
Petrol prices were deregulated in June 2010 by the Congress-led United Progressive Alliance (UPA) government. Subsequently, Prime Minister Narendra Modi-led government decontrolled diesel prices in October 2014. While state-run fuel retailers often tend to flatten any sharp spike warranted in petrol and diesel prices by keeping them unchanged during times of high volatility, the government’ stated position has been that it has no role in the pricing.
There have been several instances wherein OMCs have refrained from increasing prices in the run-up to elections. In the current scenario, petrol and diesel prices have remained static over three months even though during this time period, the global crude prices have gone by over $40 a barrel. This is the most extended duration when the fuel retail rates have remained static since the daily price revision began in June 2017.
In the national capital, the retail price of petrol on Monday was ₹95.41 a litre, while diesel was sold for ₹86.67 per litre.
The incessant rise in crude prices would also impact the current account deficit (CAD) to a great extend given India's import dependence for its energy requirements. An ICRA report on Monday is likely to widen by $14-15 billion (0.4% of GDP) for every $10 barrel rise in the average price of the Indian crude basket.
"If the price averages $130/bbl in FY2023, then the CAD will widen to 3.2% of GDP, crossing 3% for the first time in a decade," it said.
Mint had earlier reported that the government is assessing the evolving geopolitical situation and will decide on cutting excise duty on fuels if the current surge in crude price lingers longer than can be absorbed by state-run fuel retailers.
The ICRA report said that if the Centre reinstates the excise duty on petrol and diesel to the pre-pandemic rates, before April 1, 2022, followed by the budgeted rise of ₹2 per litre each on unblended fuel in H2 FY2023, the estimated revenue loss to the Centre in FY2023 would be around ₹90,000 crore.
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