Statsguru: Six charts show recurring worries over rising crude oil

Crude oil prices have been surging again because of geopolitical tensions and lower than expected production from some of the world’s largest suppliers.

Oil demand in India took a hit during the pandemic. It is expected to have returned to the pre-pandemic levels of 4.84 million barrels per day in 2021. This is expected to rise to 5.23 million barrels per day in 2022 (chart 1).  A surge in prices during the recovery has significant implications since India imports more than 85 per cent of its crude requirement.  

The Organisation of the Petroleum Exporting Countries (OPEC) has been slower to raise production than expected. Some among the group of 13 countries, like Nigeria, have seen production fall by over a tenth from 2020 (chart 2). 

The share of OPEC in global oil production has been falling in recent times (chart 3). However, OPEC countries still account for 79.4 per cent of the world’s total oil reserves leaving them to be the primary price setters in the market. 

The value of India’s oil imports has risen faster than the quantity imported since 2000. The quantity of oil imported was up 2.8 times as of 2019-20 compared to 1999-2000. Import value, however, went up 6.8 times during the same period (chart 4). 

The price of the Indian basket of crude rose to $89.12 as of February 3. A higher crude price typically has a negative impact on India’s current account deficit (chart 5).

The impact this time on government finances is also likely to be in focus. The share of petroleum taxes was higher in 2020-21 than in the previous year for both the central and state governments (chart 6). Higher crude prices also lead to higher inflation. Experts have pointed out that the government may be forced to cut taxes in a bid to contain inflation.
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