Brace Yourselves! Petrol @ 125?

The war between Russia and Ukraine today has become intensely militant, aggressive, and harsh-hostile and due to the sustained demand, it is expected to keep global crude oil prices in the range of $95-$125 per barrel. This means, in a long run, the hike in crude oil prices is expected to increase India’s domestic prices of petrol and diesel by Rs 15-22 per litre.

As of now, it is expected that the OMCs will revise the present rates anytime from now as March 7th is the last day of voting in the ongoing state assembly elections. However, an excise duty cut may sparge the effect on petrol and diesel prices to some extent, but not entirely. Currently, India imports 85 per cent of its crude oil needs.

When the crude oil rate was $84, the petrol price was Rs 110 per litre. Now that Crude rose to $112, one can easily expect petrol rates to increase as much as Rs 125. Already India’s main inflation gauge, CPI has crossed the target range of the RBI in January. The rise was blamed on high commodities costs and a 10 per cent rise in crude oil prices adds nearly about 10 basis points in CPI inflation.

Amid the war crisis, the fear of lower supply sanctions has pushed Brent crude oil price to a 10-year-high level of nearly $120 per barrel. Yesterday, crude oil stood at $113.76 per barrel from a 10-year high of $119.84 per barrel the day before. It is a known fact that Russia is the third-largest producer of crude oil in the world. “Crude oil prices may keep from trading range next week capping upside at $130 and support at $95 per barrel,” said Tapan Patel, Senior Analyst (Commodities), HDFC Securities.

In conclusion, with the higher oil prices, the Indian government may soon hike fuel prices post UP elections, expecting a rise by Rs 10-15 per litre. Several opposition parties have been accusing the BJP government of stalling the hike in fuel prices during elections and raising the prices soon after the polls are over. One can easily predict that the ongoing rally in global crude oil prices will impact India’s oil import bill and trade deficit. The cost of the Indian basket of crude, which averaged $69.88, $60.47, and $44.82 per barrel in FY19, FY20, and FY21, respectively, averaged $94.07 in February. However, it surged to $117.39 a barrel on 3 March.