NEW DELHI: Global benchmark Brent crude spurted to $113/barrel on Wednesday, unimpressed by a US-led initiative for a co-ordinated release of 60 million barrels from emergency stockpiles of 31 International Energy Agency member-countries, as sanctions force consumers to shun Russian oil. Brent, accounting for 50% of globally traded oil, was last seen at this level in July 2014.
India’s crude cost also shot up $2 since February 24 to $102/barrel as Brent makes up 25% of the barrels bought by domestic refiners, making a fuel price shock inevitable after the last phase of polling in UP ends on March 7.
India’s crude cost was $83/barrel on November 4, when the Centre cut excise duty by Rs 10 on diesel and Rs 5 on petrol to give relief ahead of polls in five states. Pump prices have remained unchanged since then under an informal government diktat.
The political expediency of keeping fuel prices under check will end with the polls. With the dollar also appreciating to Rs 75. 71, the gap between the cost and retail prices of petrol and diesel is too wide for the freeze to continue, without hurting bottom lines of retailers.
Even though Russia has said it will not weaponise energy flow to Europe and elsewhere, the US sanctions and Moscow’s removal from SWIFT, the global inter-bank messaging system for transactions, is creating hurdles for shipping and insurance.
This is forcing many consumers to look at West Asia for alternative supplies. This is where the crunch could lie as the Opec+ grouping, including Russia but dominated by West Asian producers, does not have much spare capacity. At Wednesday’s ministerial meeting, the grouping decided to carry on with raising monthly production by 400,000 barrels/day as planned.
The price spike is not due to any change in market fundamentals but due to the “geopolitical situation”, the grouping said after its meeting. No wonder, US president Joe Biden’s announcement of releasing 30 million barrels failed to douse the oil market.
