Indians, reeling under the burden of high fuel prices, could be in for another jolt due to reasons that are mostly out of the country’s control.
A failure to resolve a rare standoff between the United Arab Emirates (UAE) and Saudi Arabia could push global crude oil prices up further.
The two Arab nations are in disagreement over a plan by the Organization of the Petroleum Exporting Countries (OPEC) that seeks to extend a cap on oil production. OPEC is an intergovernmental organisation of 13 oil-producing nations.
In 2020, when many countries went into Covid-19 lockdowns, OPEC made supply cuts to prop up prices and reduce an oversupply. OPEC had decided that the cuts will stay until April 2022. Then, between February and April this year, Saudi Arabia voluntarily made another production cut of 1 million barrels per day, of which only 250,000 barrels of production had been restored in May.
On July 2, Saudi Arabia, the largest oil producer among the OPEC nations, sought the group’s approval of its proposal to raise oil output by around 2 million barrels per day between August and December 2021. The country also wants to extend the OPEC supply cuts of 2020 to the end of 2022.
UAE has expressed its dissent over Saudi Arabia’s decision triggering unease among the OPEC nations. The UAE has pushed back stating that a cut in output beyond the initial deadline would be “unfair” for the country. It further added that the global market is “in dire need of higher production” of crude oil, especially after a drop in oil prices and production last year.
At present, crude oil prices stand around $75 per barrel range, hitting the highest level since May 2019. In January, global crude oil prices were around $52.
How crude oil prices have hit petrol prices in India
Already, in the last two months, the price of petrol has gone up 36 times. On July 6, petrol in Mumbai was selling at Rs105.92 ($1.43) per litre, while in Delhi it stood at Rs99.86 a litre. Likewise, diesel price has changed 34 times in the past two months.
Despite the fact that petrol prices in several states across the country had touched the Rs100-mark, oil firms in India have stated that the price is still low in comparison with the rise in the rate of the global hike.
In addition to the international price of crude oil per barrel, the oil price in India is largely dependent upon state and central government taxes. Other factors such as import charges, port duty, freight charges, and excise duty also come into play in determining the prices.