Output cut by OPEC+ countries may push up India’s oil import bill

“The under-recoveries of OMCs are likely to increase on sale of petrol and diesel. If higher prices are passed on to the consumers, it would lead to higher inflation.
Image used for representational purpose only. (Photo | AFP)
Image used for representational purpose only. (Photo | AFP)

NEW DELHI: Cut in oil production by OPEC+ countries will increase India’s oil import bill, and eventually will increase the cost of transport fuel in the country. The industry experts also noted that the inflated price of crude in the global market is likely to increase the under-recoveries of Indian Oil Marketing Companies (OMCs).

“The under-recoveries of OMCs are likely to increase on sale of petrol and diesel. If higher prices are passed on to the consumers, it would lead to higher inflation. Besides this, the oil import bill would increase. There would be some inventory gains for refiners,” said Prashant Vasisht, VP and co-Group head at ICRA.

The OPEC+ countries on October 5, 2022, announced to reduce oil production by about 2 million barrels per day to check the oil price in the international market. Following this move, Brent Crude oil, which fell from $127.98 per barrel in March to $82.86 per barrel on 26 September 2022, again picked up to above $90 per barrel. Brent Crude Future on Monday was trading at $97.79 per barrel (IST 8.25PM) and US West Texas Intermediate (WTI) crude futures $92.64 per barrel (IST 8.25PM).

“Crude prices increased by over 10% in last one week due to cut in output by OPEC+ members. We are expecting it to test $100 to $102 levels soon,” said Anuj Gupta, vice-president, Research, IIFL Securities. Gaurav Moda, India Energy Leader, EY said Indian OMCs are careful about price hikes as well as reductions in line with market dynamics.

“Based on this, it is expected that there may be some moderation in domestic fuel prices in due course, not necessarily immediately,” he said. India’s crude basket, which has come down below $80 per barrel last week, again jumped to $95 per barrel on 7 October 2022. Throughout the year it has averaged above $100 per barrel. India is the third-largest oil consumer in the world, and the country meets 85.5 per cent of its crude oil demand from imports as of FY22 (FY22).

Crude oil price trends

  • OPEC+ countries on October 5 announced to cut oil production by about 2 million barrels per day
  • Brent Crude oil, which fell from $127.98 per barrel in March to $82.86 per barrel on Sep 26 again, picked up to above $90 per barrel
  • Brent Crude Future on Monday was trading at $97.79 per barrel (IST 8.25PM) and WTI crude futures $92.64 per barrel
  • Crude oil prices increased sharply by more than 10% in the last one week due to slash in production by OPEC + members

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