CHENNAI: The steady decline in global crude oil prices over the past fortnight has begun to offer some relief to India’s battered auto fuel customers, with diesel prices being cut for the third straight day on Friday. While petrol prices have not fallen, industry sources say they are likely to follow suit soon, reflecting the fall in crude rates.
Brent crude oil prices have dived over $10 per barrel since the beginning of August and are currently trading at $65.6 on the spot market—their lowest level since May. Crude oil prices have begun facing concerted pressure on the demand side due to fears that the rising number of Delta variant Covid-19 cases globally may result in the return of lockdowns and a demand crash.
On the supply side, there has been a sharp increase in the number of operating rigs in the United States, leading to a rise in production. India’s oil companies generally price petrol and diesel based on a 15-day rolling average of the respective international benchmark rates. According to industry sources, this graph has begun to trend downwards over the past week, resulting in the price cuts.
Fuel prices had seen their first revision in over a month on Monday, when diesel prices were cut by between 19-21 paise a litre, bringing the rates down to Rs 89.67 per litre in New Delhi. Similar cuts on Thursday and Friday have brought diesel prices down to Rs 89.27 per litre in New Delhi, Rs 96.84 in Mumbai, Rs 93.84 in Chennai and Rs 92.32 in Kolkata.
“There will be some relief for customers because there is a little more crude oil supply in the market than was factored in earlier (due to the rise in US rigs), and the delta variant is raising genuine fears that demand will again be dented—especially in places like the US and China. This is causing a fall in both spot and futures prices internationally. So once the benchmark rates fall, oil companies will start doing so for petrol too,” said an industry executive.
Goldman Sachs, for instance, has now cut its estimates for GDP growth in the US due to delta variant concerns, which oil market observers say could have a further impact on oil demand in the second half of this year. However, while both these factors are likely to keep prices low in the immediate future, analysts still expect crude rates to continue on their general recovery trend in the medium-to-long term once cases fall again.
