Why is oil on the boil?

By: | Updated: May 5, 2018 2:23 AM

Given that the price of Indian basket of crude has spiked to $71.4 a barrel now, from $50.57 in May last year, the country’s oil import bill is set to rise, which will adversely impact India’s trade deficit and current account deficit.

crude oil, oil sector, oil industryGlobally, India is the third-largest importer of crude. (Reuters)

Given that the price of Indian basket of crude has spiked to $71.4 a barrel now, from $50.57 in May last year, the country’s oil import bill is set to rise, which will adversely impact India’s trade deficit and current account deficit. Oil import bill rose 25% in FY18 to $109 billion and domestic production of crude has remained stagnant. Globally, India is the third-largest importer of crude.

High oil prices will put pressure on the margins of oil marketing companies as, a fortnight before Karnataka goes to polls, state-owned oil firms have stopped revising petrol and diesel prices. The finance ministry has not cut excise duty to give relief to the common man from petrol hitting a 55-month high of `74.63 (in Delhi) a litre and diesel at a record high of `65.93 (in Delhi). Since June last year, oil companies adopted a dynamic daily price revision to instantly reflect changes in cost instead of fortnightly revision of prices.

The sharp rally in crude oil prices has been driven by tighter declining production from Venezuela and OPEC’s decision for production cut. In fact, sustained cuts by other countries led to 2.4 million barrel a day of reduction in total production as compared with 1.7 million barrel a day of agreed cuts. As global crude prices are likely to stay elevated, India will have to encourage foreign players to invest in domestic oil exploration and production for energy security.

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