NEW DELHI: Petrol and diesel might have hit record highs across India on Friday, but whether consumers will need to buckle up for even pricier fuel depends on US President Donald Trump.The sharp rise in fuel prices recently have been driven almost entirely by a jump in global crude oil rates. Brent crude, the primary constituent of India’s crude import basket, breached the $74 per barrel mark on spot markets this week, up from just $65.25 two months ago. In India, petrol prices hit a 55-month high, while diesel broke all previous records.
Global crude prices moderated slightly on Friday, however, after Trump tweeted that prices were “artificially high” due to Organisation of the Petroleum Exporting Countries (OPEC) meddling and that this “will not be accepted”. The tweet came even as the OPEC stated that the market could absorb higher prices.
But, while Trump’s belligerence eased fears of unchecked supply cuts, the same belligerence is causing analysts to lean towards even higher price estimates — with predictably negative outcomes for India.
Come May 12, Trump’s own deadline for reviewing currently relaxed oil sanctions on Iran ends. While some believe that he could opt for a status quo, a substantial majority of analysts believe otherwise.
For example, Citigroup’s head of commodities research Ed Morse says that “a change of personnel in both the White House and the State Department” pushes the probability for sanctions upwards.
If re-imposed, oil is expected to quickly add on a few dollars. “Our average for the second quarter was $75 but our high-case scenario was $80. In a case Iran tensions escalate, you will obviously see prices trend towards those levels,” Abhishek Deshpande, head of oil market research and strategy, JP Morgan is quoted as saying.
Any increase will be bad news for Indian consumers and the government both. If the latter does not intervene (either by slashing duties or asking oil marketing firms to absorb costs), consumers could see more record-breaking prices, while easing inflation could flare up again. Being a large importer, this will also affect an already widening current account deficit (CAD).The crude oil import bill increased by 28 per cent in February.On the other hand, intervention by slashing duties will hit government revenues hard, with the last excise duty cut in October 2017 already costing it `26,000 crore in annual revenue.
‘Investor tepidness to continue in near term’
Bellwethers in sectors like energy, automobile and consumer durables slumped following the $74.15 high scathed by crude oil, leading the NSE to close up 12 points lower at 34,415 and the BSE to lose 1.25 points to 10,564 on Friday. Shares of BPCL and ONGC ended losing 1.37 per cent and 0.87 per cent respectively, while OIL and IOCL closed up with mild gains. “Trump Economics, the US-Russia-China trade war, volatility in bond yield prices and the recent rise in oil prices, none of these indicate any positivity in the market. The caution among investors is likely to remain in the near term,” said Vinod Nair, Head of Research, Geojit Financial Services.