The sharp fall in global crude oil rates over the last couple of days may come as a breather for India’s Narendra Modi government which had run into tricky political waters over rocketing fuel prices.
The world’s three largest oil producers—Saudi Arabia, Russia, and the US—have increased supply, leading to a near 5% crash in the global benchmark Brent crude since Friday (May 25). Earlier, the world’s major oil-exporting nations had cut back production, leading to the surge in oil prices since the start of the year. That, in turn, led to surging domestic prices, putting the government at odds with voters a year before the next general election.
India’s fuel retailers have hiked petrol and diesel prices now for 15 days in a row to pass on the rise in global prices. This had led to a demand for a cut in duties that make up for over half the retail price in India.
Even Rajiv Kumar, the vice-chairman of the government’s leading think tank, the Niti Aayog, had advised a cut in duties at both the central and the state level to ease consumers’ load. However, the government did not budge as the proposed cut in duties would have eaten into its revenue, further stretching its delicate financials.
Now, bringing some respite to Modi, the tide has halted, at least temporarily.
The Oil and Petroleum Exporting Countries (OPEC), the lobby of the world’s largest oil producers, along with Russia, is looking to pump more oil as the global inventory has depleted. OPEC had cut back production at the start of 2018 to ensure a reduction in global inventories.
On the other hand, the latest data show that US oil producers have hired more rigs than in any one week since 2015. Drillers in the US have stepped up production now that global crude oil prices are back to a level that is well above their cost of production.
International crude prices may have come off the spiral for now, but it may be too soon to predict that the slide will continue unabated.