Team Energy DaisRising crude oil prices have pushed diesel and petrol prices to all-time highs across the country.
OPEC has complete control over the supply chain and hence has no influence over demand for crude oil, they simply raise or lower the price to influence the price.
The role of the Organisation for Petroleum Exporting Countries (OPEC) in determining the price of crude oil. Alike all other products, the price of crude oil is also based upon demand and supply theory. As OPEC evidently doesn’t have a role in the demand for crude oil, it has full control over the supply chain, and hence in order to influence the price, they increase or decrease the price.
Evidently, Brent crude rose above $71 per barrel on Wednesday, the highest level since May 2019, after key oil-producing countries stated that they will stick to plans for a gradual rise in crude oil production. We look at what’s driving increasing crude oil prices and how it’ll affect Indian customers.
Why are crude oil prices rising?
Crude oil prices have been slowly climbing since the beginning of 2021, when Brent Crude was trading at around $52 per barrel, boosted by expectations of improved demand as a result of global economic recovery and supply cuts by key oil-producing countries. Through the first five months of 2021, the Organisation of Petroleum Exporting Countries (OPEC) continued production restrictions made in 2020, when crude oil prices were at a low of under $19 per barrel. Between February and April, Saudi Arabia made an additional voluntary production cut of 1 million barrels per day, of which only 250,000 barrels were restored in May and 750,000 barrels are set to be restored in June and July.
Experts have pointed out, however, that the gradual removal of cuts is unlikely to have a significant influence on pricing as demand for petroleum products rises, owing to increased economic activity.
The focus point of this article is to highlight what possible impact this high crude oil can cause on our country. Here are some points to be noted;
Current Account Deficit: The increase in oil prices will increase the country’s import bill, and further disturb its current account deficit (excess of imports of goods and services over exports).
Inflation: The increase in crude prices could also further increase inflationary pressures that have been building up over the past few months.
Fiscal Health: If oil prices continue to increase, the government shall be forced to cut taxes on petroleum and diesel which may cause loss of revenue and deteriorate its fiscal balance.
The revenue lost will erode the government’s ability to spend or meet its fiscal commitments in the form of budgetary transfers to states, payment of dues, and compensation for revenue shortfalls to state governments under the Goods and Services Tax (GST) framework.
Although the rising prices have impacted the world, India is particularly at a disadvantage as any increase in global prices can affect its import bill, stoke inflation, and increase its trade deficit, which in turn will slow its economic recovery. India and other oil-importing nations have called on OPEC+ to boost oil supply faster, arguing that elevated crude oil prices could undermine the recovery of the global economy.
Add comment