NEW DELHI: After the world’s largest producers announced a surprise cut in production, the oil prices in the international market jumped more than 6 per cent on Monday, which could make the government’s fight against the high inflation tougher.
The OPEC+ countries including Saudi Arabia, Iraq and Russia, on Sunday said they will slash output by 1 million barrels a day, accounting for about 3.7 per cent of global demand. The surge in crude prices is going to have an adverse impact on India as it will inflate the country’s crude basket price and oil companies will incur losses on the sale of fuel.
Brent Crude Future was trading at USD 84.77 a barrel (at 8.19 PM IST), up 6.11 per cent or USD 4.88 daily, US West Texas Intermediate crude was at USD 80.40 a barrel, up USD 4.73, or 6.25 per cent.
It touched its highest at USD 86.44 a barrel earlier in the session.
“The decision by OPEC+ to announce additional production cuts of about 1.16 million barrels a day has resulted in a surge in crude oil prices. This could fuel inflationary pressures since imports contribute to about 85 per cent of the total demand in India, the rise in crude prices increases import bill and weakens rupee against the dollar,” said Prashant Vasisht, Vice-President and co-head, Corporate Ratings, ICRA.
OPEC (Organization of the Oil Exporting Countries), which produces about 30 per cent of the world’s crude oil, decided to cut crude output by 1.16 million barrels a day from May 2023 until the end of the year.
Russia too said it would curtail a million barrels a day until the end of the year.
The purpose to cut output was to stabilise oil prices, which fell to a 15-month-low of about USD 70 a barrel, following the collapse of banks in Europe and the US.
“In recent past, Indian purchase averaged up to USD 80-90/barrel, anything incremental beyond that will have a relevant impact on our purchase basket, but normalised over 3-6 months given our existing inventories will help,” said Gaurav Moda, Gaurav Moda, Partner, Energy Sector Leader from EY India.