International oil prices surged, with Brent crude futures breaching $100 a barrel for the first time since 2014 on Thursday as Russia attacked Ukraine, leading to concerns that a war in Europe could disrupt global energy supplies. Russia is a major oil producer and if there is a supply disruption following sanctions, crude prices may witness further spike. And, that is not good news for import-dependent India.
BRENT CRUDE JUMPS HIGHEST IN 8 YEARS
Brent crude hit a high of $102.48 a barrel, the highest since September 2014, and was at $102.06 a barrel, up $5.22, or 5.4 per cent, Reuters reported.
US West Texas Intermediate (WTI) crude futures jumped $4.85, or 5.3 per cent, to $96.95 a barrel, after rising to as much as $97.40, the highest since August 2014.
IMPACT ON PETROL, DIESEL PRICES IN INDIA
India is the world’s third-largest importer of oil, and high global prices percolate through the economy and hurt consumers, while also widening the country’s current account deficit, according to a Reuters report.
India’s dependence on oil imports stood at 197 metric tons (MT) in 2021, down from 220 MT in 2018.
The dependence on oil imports was 84.4 per cent in 2021, 85 per cent in 2020, 83.8 per cent in 2019, 82.9 per cent in 2018, and 81.7 per cent in 2017.
In India, the government does not regulate petrol and diesel prices. Oil marketing companies in the country revise the fuel prices.
The changes in petrol and diesel rates in the country are directly influenced by the price of crude oil in the international market.
PETROL, DIESEL PRICES UNCHANGED FOR OVER 3 MONTHS
Petrol and diesel prices have remained unchanged for more than three months in a row in the domestic market.
This is the longest period when fuel prices have remained unchanged, ever since the daily revision of prices began in June 2017.
In November, 2021, the central government announced an excise duty cut on fuels, resulting in a sharp decrease in petrol and diesel prices across the country. The government cut the price of petrol by Rs 5 and that of diesel by Rs 10.
WHY THE WORLD IS FEARING
Oil prices have surged more than $20 a barrel since the start of 2022 on fears that the United States and Europe would impose sanctions on Russia’s energy sector, disrupting supplies.
Russia is the world’s second-largest oil producer, mainly selling its crude to European refineries, and is the largest supplier of natural gas to Europe, providing about 35 per cent of the latter’s supply.
RUSSIA-UKRAINE WAR HITS GLOBAL OIL MARKET
“Russia’s announcement of a special military operation into Ukraine has pushed Brent to the $100/bbl mark,” said Warren Patterson, head of ING’s commodity research, according to the Reuters report.
“This growing uncertainty during a time when the oil market is already tight does leave it vulnerable, and so prices are likely to remain volatile and elevated,” he added.
SUPPLY MAY BE HIT
“It’s not just geopolitical risk that is the problem but the further straining of supply,” OCBC economist Howie Lee said.
“Russian oil supply will disappear overnight if faced with sanctions … and OPEC can’t produce fast enough to cover this gaping hole.”
Some members of the Organization of the Petroleum Exporting Countries (OPEC) said there is no need for the group and its allies to increase output further as a potential deal between Iran and world powers will increase supplies. Some OPEC members are already struggling to meet current targets.
Japan and Australia said on Thursday they were prepared to tap their oil reserves, together with other International Energy Agency (IEA) member countries, if global supplies were hit by hostilities in Ukraine.
INFLATION WORRY
Analysts are also warning of inflationary pressure on the global economy from $100 oil, especially for Asia, which imports most of its energy needs.
“Soaring oil prices come at an especially difficult time,” HSBC economist Frederic Neumann said.
“Asia’s Achilles heel remains its vast import needs for energy, with surging oil prices bound to take a hefty bite out of income and growth over the coming year.”
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