Oil at $103: No fears of supply disruption to India, prices a concern

International oil prices surged to over a seven-year high of USD 103 a barrel on Thursday after Russia attacked Ukraine, but supply lines to India remain unaffected, a top government official said exuding confidence of uninterrupted fuel supplies even if the conflict escalated.

For consumers, the spike in global oil prices will not have any direct bearing just yet as state-owned fuel retailers continue to hold petrol, diesel and LPG rates.

"Supply lines are all open. None of them has been impacted (by the Russian aggression). There are abundant supplies available in the market," the official, who wished not to be identified, said. "Our suppliers are in the Middle East, Africa and North America, who are untouched by the conflict and they continue to supply oil and gas as normal. That situation is likely to continue even if the present conflict escalated."

Prices, however, are of concern as they will stoke inflation.

"Retail prices are on hold but ultimately they will have to be increased at some point," the official said.

Brent crude rose to as much as USD 103.78 a barrel, the highest since August 14, 2014, and was at USD 103.40 at 1500 hrs, up USD 6.71, or 6.93 per cent.

India, the world's third-largest oil consumer, depends on imports to meet 85 per cent of its needs. The imported oil is converted into products like petrol, diesel and LPG.

Saudi Arabia, Iraq and other Middle East nations account for 63.1 per cent of all imports. Africa is the second biggest supplier, accounting for close to 14 per cent of all supplies while North America gives 13.2 per cent.

Russia makes up for a third of Europe's natural gas and about 10 per cent of global oil production. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.

But for India, Russian supplies account for a very small percentage. While India imported 43,400 barrels per day of oil from Russia in 2021 (about 1 per cent of overall its imports), coal imports from Russia at 1.8 million tonnes in 2021 made up for 1.3 per cent of all coal imports. India also buys 2.5 million tonnes of LNG a year from Gazprom of Russia.

In retaliation to the Russian attack, the United States, the European Union, Britain, Australia, Canada and Japan have announced sanctions targeting Russian banks and wealthy individuals while Germany halted a major gas pipeline project from Russia.

Energy and other trade as of now are out of the sanction ambit.

"Availability is not a concern. We are getting normal supplies and none of the suppliers has sought any deferment," an official with Indian Oil Corp (IOC) - the nation's largest oil firm, said.

India, the government official said, is closely monitoring the evolving situation and is in touch with the US and other nations.

While supplies at the moment seem to be of little worry for India, it is the prices that are a cause of concern.

Domestic fuel prices - which are directly linked to international oil prices - have not been revised for a record 113 days in a row.

Rates are supposed to be revised on a daily basis but state-owned fuel retailers IOC, BPCL and HPCL froze rates sooner than electioneering to elect a new government in Uttar Pradesh, Punjab and three other states started.

Retail pump rates are aligned to a price of USD 82-83 per barrel and they would certainly go up once elections end next month, industry officials said.

Petrol costs Rs 95.41 a litre in Delhi and diesel is priced at Rs 86.67. This price is after accounting for the excise duty cut and a reduction in the VAT rate by the Delhi government.

Prior to these tax reductions, petrol price had touched an all-time high of Rs 110.04 a litre and diesel came for Rs 98.42. These rates corresponded to Brent soaring to a peak of USD 86.40 per barrel on October 26, 2021. Brent was USD 82.74 on November 5, 2021, before it started to fall and touched USD 68.87 a barrel in December.

Prices, however, started to rise thereafter and have risen by 12 per cent in February alone, they said.

Petrol and diesel prices have been in the past frozen before crucial elections.

There was a 19-day price freeze on petrol and diesel ahead of Karnataka polls in May 2018, despite international fuel prices going up by nearly USD 5 per barrel. However, no sooner were the elections over, oil companies rapidly passed on to customers the desired increase over 16-straight days post-May 14, 2018. Petrol price climbed by Rs 3.8 per litre and diesel by Rs 3.38 per litre after the hike.

Similarly, they had stopped revising fuel prices for almost 14 days ahead of the assembly elections in Gujarat in December 2017.

These companies had also imposed a freeze on petrol and diesel prices between January 16, 2017, and April 1, 2017, when assembly elections in five states Punjab, Goa, Uttarakhand, Uttar Pradesh and Manipur were held.

During the 2019 general elections, they moderated the revision by not passing on all of the desired increase in rates to consumers, industry sources said. The rates began to rise a day after the final phase of polling for the Lok Sabha elections ended.

The current 110-day hiatus is the longest since daily fuel price revision was adopted in June 2017. Prior to this, there was an 82-day hiatus in rate revision between March 17, 2020, and June 6, 2020.

The 82-day hiatus in rate revision in 2020 followed the government raising excise duty on petrol and diesel by Rs 3 per litre each to mop up gains arising from falling international rates. The government on May 6, 2020, again raised excise duties by Rs 10 per litre on petrol and Rs 13 per litre on diesel.