You may have to pay more for petrol, diesel again due to Opec output cut

An increase of a dollar in oil prices on a permanent basis would increase the country's import bill by roughly $1.6 billion per annum

Brent Crude oil prices might swing back to $70 a barrel with the Organization of Petroleum Exporting Countries (OPEC) deciding to cut production by close to 1.2 million barrels per day (mbpd).

CARE Ratings, in a report, said it foresees an increase in the retail prices of petrol and diesel in the coming few days, depending on how the oil markets react in the reduction in supply from the cartel. 

The prices of petrol and diesel dropped on Monday by 24 paise and 27 paise, respectively. Petrol prices in Delhi were Rs 70.31 a litre; diesel was at Rs 64.82 a litre. Brent price was $60.93 a barrel at one point in the day, before going down again.

“A production cut of 1.2 million barrels per day would tighten the oil market by the third quarter of 2019 and cause prices to rise back above $70 a barrel for Brent,” said Ann-Louise Hittle, vice-president, Macro Oils at Wood Mackenzie. 

With India expected to import 1,643 million barrels of Crude oil in FY19, increase of a dollar in prices on a permanent basis would increase the country’s import bill by roughly $1.6 billion per annum.

“Any increase in oil prices is always going to be a cause of concern for India considering we import more than 80 per cent of our oil requirements. In the current financial year, India has imported around 4.6 million barrels per day. Impact is to be felt in terms of trade deficit, on the markets, Indian basket of crude oil prices and exchange rate,” the CARE report said.

Crude oil and its products have a weight of 10.4 per cent in the Wholesale Price Index (WPI). Of this crude oil and natural gas have a weight of 2.4 per cent and mineral oils around 8 per cent. 

“Therefore, any increase in the price of crude oil would tend to impact the WPI inflation number commensurately,” it added.  In terms of the Consumer Price Index (CPI), fuel related items have a weight of nearly 2.7-2.8 per cent directly. Fall in the crude oil prices will impact the WPI more than the CPI.

Fall of rupee is also a cause of concern for the Narendra Modi government. Fitch Ratings said in its recent report that it expects the Indian currency to weaken to 75 rupees against the US dollar by the end of next year on a widening current account deficit and tighter global financing conditions. 

“We believe that if Indian rupee drops to these levels then it will increase import cost of oil and the benefit which India was getting from lower oil prices may not last long. Brent oil may consolidate in the broader range of $57.50-$64.40, OPEC meeting to remain in focus. Global economic growth is looking slightly positive post the US-China tariff talk while OPEC oil production cut may boost prices from current levels,” said Abhishek Bansal, chairman, ABans group of companies.