HomeBusinessFuel prices set to slide soon as OPEC+ agrees to boost supply

Fuel prices set to slide soon as OPEC+ agrees to boost supply

NEW DELHI: Fuel prices are expected to come down shortly as the OPEC+ grouping on Sunday agreed to add more barrels to the market, averting a supply squeeze and reducing the risk of an inflationary oil price spike.
The grouping, which includes Russia, decided to raise production by 400,000 barrels per day (bpd) from August till December to restore 2 million bpd of production, or about 44% of India’s daily requirement. It also agreed on a higher production quota for United Arab Emirates, Iraq and Kuwait – all India’s major suppliers.
UAE’s demand for a higher quota had caused a rift with the OPEC lynchpin Saudi Arabia and threatened a supply squeeze amid recovering demand in India, China, the US and Europe.
The OPEC+ deal comes within days of India’s new oil minister Hardeep Singh Puri reaching out to his UAE and Saudi counterparts Ahmed Al Jaber and Abdulaziz bin Salman, respectively. Leveraging New Delhi’s close ties with Abu Dhabi and Riyadh, Puri had offered to work with them to “calm the market” and conveyed concerns over the recessionary impact of high oil prices on demand recovery.
More barrels will ease pump prices and inflation, both of which have risen to record levels and drawn Opposition flak. So politically, the deal will help the government blunt some of the criticism in Parliament, which begins its monsoon session on Monday, once fuel prices start declining. Lower oil prices will also give the government financial breathing space.
India’s crude cost has already come down to $73 per barrel from a high of $77-78 as benchmark Brent has been edging lower from its 30-month high on news of a possible Saudi-UAE deal and resurgence in Covid-19 cases in some regions.
Petrol and diesel prices are set according to a 15-day rolling average of their international quotes and the dollar exchange rate. Crude price is an intermediary factor. This is expected to reflect at the consumer level in a matter of days and consumers can expect pump prices to slide once additional barrels start flowing.
Petrol price is ruling over Rs 100 per litre and diesel above Rs 90 in most states as high Central and state taxes amp up the impact of rising crude. The rupee too had recently weakened against the Greenback, putting upward pressure on pump prices.
The OPEC+ grouping had last year cut production by a record 10 million bpd, or roughly 10% of daily global supply, amid a pandemic-induced slump in demand and collapsing prices. It has gradually reinstated some supply to leave it with a reduction of about 5.8 million bpd.

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