FE Editorial : Oil’s pricey, again

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The Financial Express: Dec 30 2009, 22:42 IST

At the beginning of 2009 there was very little to cheer about, at least on all economic matters and indicators. The world had just gone through three months of an unprecedented financial crisis, which quite quickly translated into a recession in the real economy. The only silver lining in all the gloom was the easing up of oil prices. From a peak close to $150 per barrel in the summer of 2008, crude oil prices averaged below $40 per barrel in January 2009, a considerable fall in just six months. Obviously, recession pulled down demand sufficiently to put downward pressure on prices. For the UPA government, which had burnt a hole in the fiscal deficit by compensating oil marketing companies for their losses, the easing of prices just before the general election was welcome. Oil marketing companies tend to go into the red once the price of crude crosses the $60-65 mark. Unfortunately, the government missed the perfect opportunity to deregulate oil prices and link them directly to global prices. The ideal time to do this was when crude prices were still hovering between $30 and $40 per barrel. Even if the UPA government did not want to risk such a move before the general election, it had the opportunity to push deregulation of prices when it was returned to power in May.

Now, at the end of 2009, oil prices are close to $80 per barrel. Some of the 12% surge in just the last two weeks is because of

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