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Contents
What is the news?
The price of Brent Crude breached the $85 per barrel mark earlier this week reaching its highest level since 2018 on the back of a sharp increase in global demand as the world economy recovers from the pandemic.
Key oil producing countries have kept crude oil supplies on a gradually increasing production schedule despite a sharp increase in global crude oil prices.
The price of Brent crude has nearly doubled compared to the price of $42.5 per barrel a year ago.
Why the prices are up?
Slow production by OPEC+: OPEC+ had agreed to sharp cuts in supply in 2020 in response to Covid-19 global travel restrictions in 2020 but the organisation has been slow to boost production as demand has recovered.
Supply side issues in the US including disruptions caused by hurricane Ida
Lower than expected natural gas supplies from Russia amid increasing demand in Europe have raised the prospect of natural gas shortages in the winter.
What is the impact on India?
– Impact on fuel prices: High crude oil prices have contributed to the prices of petrol and diesel regularly setting new record highs across the country in 2021.
– Impact on domestically produced natural gas price: High international gas prices have led to an upward revision in the price of domestically produced natural gas.
The increase in gas prices has put upward pressure on the price of both Compressed Natural Gas (CNG) used as a transport fuel and Piped Natural Gas (PNG) used as a cooking fuel.
High international prices of coal have added to a coal shortage at India’s thermal power plants by forcing thermal plants using imported coal that could not pass on the higher price of coal to procurers to stop supplying power.
India and other oil importing nations have called on OPEC+ to boost oil supply faster, arguing that elevated crude oil prices could undermine the recovery of the global economy.
How has OPEC+ responded?
In its latest round of meetings, the OPEC+ group of oil producing countries reaffirmed that they would increase total crude oil supply by only 400,000 barrels per day in November despite a sharp increase in prices.
The output of the top oil-producing countries – Saudi Arabia, Russia, Iraq, UAE and Kuwait — would still be about 14% lower than reference levels of production post the increase in November.
Source: This post is based on the article “Explained: Why global fuel prices are up, how India is impacted” published in The Indian Express on 20th Oct 2021.
