Crude oil prices are again seen to be moving towards $100 per barrel as Iran launched attacks against Israel on April 13, putting strain on import-dependent India.
India—a net importer of crude oil—is highly sensitive to international oil prices as it receives over 85 percent of its requirements from other nations. This directly links the retail prices of petrol and diesel sold in the country to prices in the international market.
Brent crude futures on April 12 settled at $90.45 per barrel, around 1 percent higher on account of tensions building up between Iran and Israel.
India’s oil secretary Pankaj Sharma on April 2 had pointed out that rising crude oil prices are a cause of concern. The remarks by the oil ministry official had come after Indian oil marketing companies (OMCs) had slashed prices of petrol and diesel by Rs 2 per litre on March 14 after crude oil prices were trading around $80 per barrel for quite some time.
However, Sharma said in his latest remarks that if oil prices continue to stay elevated for a month longer, these companies would take an appropriate decision on retail fuel prices. For context, oil prices have been trading higher since then.
Where are crude oil prices headed?
In late March, analysts at JPMorgan Chase & Co had forecasted that oil prices could reach $100 by September 2024. The guidance was primarily based on production cuts by Russia—one of the largest contributor towards oil supply in the world. The analysts said supply cuts by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) put additional pressure on prices.
On top of supply cuts, heightened tensions in the Middle East, from where major portion of world’s oil supply comes, could result in a rally in oil prices in the coming weeks.
Brokerage Sharekhan, said in a note on April 3, that it expects prices to show a strong performance in the second quarter of 2024 as well, buoyed by the growing geopolitical rifts in the Middle East and OPEC+ managing strong compliance of crude oil production targets.
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US President Joe Biden has condemned the attacks by Iran and has shown support to Israel and committed towards security of the Netanyahu-led country. Biden added that he would convene G7 leaders “to coordinate a united diplomatic response to Iran’s brazen attack", putting further pressure on prices.
Can this impact retail fuel prices?
After leaving petrol and diesel prices unchanged for around two years, state-run OMCs cut fuel prices in March, ahead of the Lok Sabha elections in the country, raising hopes that they may further reduce prices. However, crude oil prices had climbed to a four-month high in late March, diming expectations of further fuel price cuts by the OMCs.
With the continuous rise in crude oil prices since late March, further reduction in retail prices seems to not be on the cards currently.
What are the OMCs saying?
Indian Oil Chairman SM Vaidya told reporters on March 15 that a call on further reduction in prices would be taken considering the volatility in crude oil. Vaidya had said that crude oil prices are dynamic and the company is waiting for prices to show some trend.
Similarly, Minister of Petroleum and Natural Gas Hardeep Singh Puri had also said that a decision on fuel price cut would be taken post stabilisation in crude prices. OMCs are still posting under-recoveries on the sale of diesel, Puri said without disclosing the amount.
So far in 2024, crude oil prices have remained elevated due to tighter supply but also shipping risks and attacks by Ukraine on Russian energy infrastructure. In the first quarter of the calendar year, crude prices gained 16 percent and now stand at a six-month high, with Brent above $89 and WTI, the US benchmark, breaching $85 a barrel level for the first time since October last year.
Iran-India oil relations
Before the sanctions imposed by the US, India used to source crude oil from Iran. However, the Donald Trump administration re-imposed sanctions on Iran in 2018, which led to India reducing its imports to zero from the country.
As talks had been emerging of the US lifting the sanctions again after Biden took charge, Iran had been pitching India to restart crude supplies. India, which has been looking to diversify its oil sources to immune itself from high prices, has also been interested in buying oil from Iran.
Oil Minister Puri had said that India would enter into agreements with Iran if the sanctions on the country were lifted.
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