India sees no respite from skyrocketing petrol and diesel prices. Petrol price in Mumbai breached Rs 90 per litre mark yesterday. It is close to Rs 83 in Delhi. Yet the Narendra Modi government has not given any indication of a tax cut.
Though Karnataka, Andhra Pradesh, Rajasthan and West Bengal have slashed taxes on petrol and diesel marginally, the Centre cannot afford any drastic cuts especially when rupee too is depreciating. India imports most of its oil. Cutting taxes on petrol will fuel fiscal deficit and hit funding for crucial developmental projects. The government wants the consumer to bear the burden of rising global prices.
PM Modi has remained steadfast so far, hoping to ride out the global spike in prices. But now he may have to blink. He might be banking on the hope that global oil rates would come down. But it seems the rates might go even higher.
Oil prices could rise towards $100 per barrel towards the end of the year or by early 2019 as sanctions against Iran bite, commodity merchants Trafigura and Mercuria said on Monday at the Asia Pacific Petroleum Conference (APPEC) in Singapore.
Almost 2 million barrels per day (BPD) of crude could be taken out of the market as a result of the U.S. sanctions against Iran by the end of the fourth quarter this year, said Daniel Jaeggi, president of commodity merchant Mercuria Energy Trading, making a crude price spike to $100 a barrel possible. Ben Luckock, co-head of oil trading at fellow merchant Trafigura said crude oil prices could rise to $90 per barrel by Christmas and to $100 by the New Year as markets tighten.
In case of crude oil spiking to $100 a barrel, petrol and diesel prices in India too would rise further as India imports most of its crude oil, the raw material for petrol and diesel.
Global oil prices have been rising since early 2017, when the Organization of the Petroleum Exporting Countries together with other suppliers including Russia started withholding output to lift crude prices. Unplanned disruptions from Venezuela to Libya and Nigeria have further tightened the market just as global demand approaches 100 million bpd for the first time. Now with the US sanctions against Iran, market is expected to tighten further.
From above Rs 90 today, petrol price above Rs 100 is not unimaginable. The price breaching the psychological Rs 100 mark just a few months ahead of the next general elections might force Modi’s hand.
