OPEC+ ups output but fuel prices to stay high in India
The Sunday agreement of the Organisation of the Petroleum Exporting Countries and allies (together known as OPEC+) to gradually increase supplies in the market is not enough to meet the growing fuel demand of major global economies, hence it may not immediately lead to any significant reduction in domestic petrol and diesel rates, government officials and industry executives said.
The move by OPEC+ is more to save the producers’ cartel, which appears to be a compromise reached between the two factions – the one that wanted to continue the squeeze for raising oil prices further and the other that pushed for raising output, they said requesting anonymity. Producers at OPEC+, particularly Saudi Arabia and the United Arab Emirates, on July 5 clashed over plans of raising output that disrupted the meeting and threatened the alliance.
The meeting, which was reconvened on Sunday, agreed to boost supplies by 400,000 barrels per day every month from August till the halted output is fully restored. One of the key reasons for high domestic fuel rates in India is production curbs by the oil cartel.
OPEC+, which includes Russia, on April 12 last year announced an unprecedented 9.7 million barrel per day cut in oil output, a 10th of the global output, from May 1, 2020. The move was to check the free fall in oil rates after global fuel demand slumped due to the Covid outbreak. Later, when demand rose, they did not adhere to the planned restoration of supply.
Commenting on the Sunday agreement of the cartel, RS Sharma, former chairman of the state-run Oil and Natural Gas Corporation (ONGC) said the squeeze by OPEC+ still continues. “The supply increase remains strong in favour of high prices,” he said.
SC Sharma, an energy expert and former officer on special duty at the erstwhile Planning Commission, said that the increase in output is insignificant compared to the growing demand.
Citing the US Energy Information Administration (EIA), he said: “It is expected that global oil demand in Q3-2021 is going to rise by about 2.5% to 3% over Q2, 2021, and that would amount to about 2.5 to 3 million barrels per day.”
“The announced increase of 400,000 barrels per day of oil by OPEC plus may rather help in pushing [up] oil prices due to high spurt in oil demand as also major economies like USA, EU, UK and other Asian countries have gone through substantial vaccination programs which helped increased economic activities thus resulting in a sharp increase in demand for oil,” he said.
Debasish Mishra, Partner, Deloitte India, said: “This is a welcome move but the supply ramp up suggested by OPEC is inadequate as demand is coming back faster... Oil market supply situation is expected to remain tight well into 2022 and prices may continue have an upward bias, which is not very good news for India.”
An oil ministry official said this is a move in the right direction as India has been asking producers to raise output. “We hope the alliance to increase supplies more to match the demand,” he said requesting anonymity.
India has witnessed a record jump in petrol and diesel rates that crossed ₹100 per litre in several cities. So far, state-run fuel retailers have raised pump rates of petrol by ₹11.44 a litre and diesel by ₹9.14 since May 4. Exorbitant taxes are the other reason for high fuel rates in India. Through 2020, as global crude prices crashed below $20 a barrel, the central government had raised excise duty on fuel to shore up its finances. States too followed suit -- with revenues hit on account of the pandemic.
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