Oil retreats, still above USD 100 per barrel; no supply shocks for India

The government is 'closely monitoring the situation' and will 'take appropriate steps as and when required', a top official said.

Published: 25th February 2022 02:42 PM  |   Last Updated: 25th February 2022 02:42 PM   |  A+A-

A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas. (Photo | Reuters)

Image used for representational purposes only(File photo | Reuters)


NEW DELHI: International oil prices retreated from an over seven-year high but was still above USD 100 a barrel and continue to pose threat to India's inflation rate and current account deficit.

While there are no supply concerns as the oil route remained open, consumers will feel the pinch when PSU oil firms start passing on the increase in international rates through a revision in petrol and diesel prices, which have been on a pause for over three-and-a-half-months in view of elections in Uttar Pradesh and four other states.

The government is "closely monitoring the situation" and will "take appropriate steps as and when required", a top official said.

Brent crude oil surged past USD 105 per barrel on Thursday for the first time since August 2014, following Russia's invasion of Ukraine. It however retreated and fell to USD 101 on Friday. It was trading at USD 101.93 a barrel at 1330 hrs.

The spike was a result of fears in the market of Russian supplies to Europe and rest of the world being impacted, a trader said adding the risk premium on the oil price right now is around USD 10-15.

Industry sources said the gap between the retail selling price of petrol and diesel and the cost is well over Rs 10 per litre, which when passed on after completion of the elections next month would result in a spike in the inflation rate that is already above the RBI's tolerance level of 6 per cent.

Besides, high oil prices risk impacting the current account deficit as India imports 85 per cent of its oil needs and will have to pay extra because of higher prices.

Morgan Stanley said higher oil prices are negative for India, which is the world's third-largest oil importer.

Great Eastern Energy Corp Ltd (GEECL) chief executive Prashant Modi said the availability of hydrocarbons is expected to become a major issue worldwide.

"This is particularly concerning for a nation like India, which is heavily dependent on imports for its hydrocarbon requirements," he said.

"This crisis is again a reminder that we need to urgently build a conducive policy environment in India to boost domestic production of oil and gas.

" Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, said, "As the global economy witnesses a drop in headwinds from the Covid pandemic, new geopolitical risks emerge from the Russia-Ukraine conflict and if turns out to be a prolonged affair, crude oil prices are likely to stay above USD 100 over the near term.

" This will clearly have an impact on the domestic inflationary scenario where there are already significant undercurrents due to increasing pass-through of higher commodity prices with improving demand in manufactured products and even services, he said.

"While the government can partly alleviate the pressures through a further cut in excise duties of retail fuels, input costs are set to increase further for sectors such as paints, chemicals, plastic products, transport and aviation in the near term." India, the world's third-largest oil consumer, depends on imports to meet 85 per cent of its needs.

The imported oil is converted into products like petrol, diesel and LPG. Saudi Arabia, Iraq and other Middle East nations account for 63.1 per cent of all imports.

Africa is the second biggest supplier, accounting for close to 14 per cent of all supplies while North America gives 13.2 per cent.

Russia makes up for a third of Europe's natural gas and about 10 per cent of global oil production. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.

But for India, Russian supplies account for a very small percentage. While India imported 43,400 barrels per day of oil from Russia in 2021 (about 1 per cent of overall its imports), coal imports from Russia at 1.8 million tonnes in 2021 made up for 1.3 per cent of all coal imports.

India also buys 2.5 million tonne of LNG a year from Gazprom of Russia. In retaliation to the Russian attack, the United States, the European Union, Britain, Australia, Canada and Japan have announced sanctions targeting Russian banks and wealthy individuals while Germany halted a major gas pipeline project from Russia. Energy and other trade as of now are out of the sanction ambit."Availability is not a concern.

We are getting normal supplies and none of the suppliers has sought any deferment," an official with Indian Oil Corp (IOC) - the nation's largest oil firm, said.


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp