International oil prices are expected to fall further because of demand concerns due to Omicron, which has been named a “variant of concern” by the World Health Organisation and the European Centre for Disease Prevention and Control, the people said, requesting anonymity.
He, however, downplayed the impact of nations raising supply by releasing oil from strategic reserves. “These announcements could not impact international prices much. However, renewed Covid-19 concerns have now brought about the desired objective,” he said.
Major oil consumers – the US, China, India, Japan and South Korea – for the first time reacted to the supply squeeze by producers’ cartel by announcing a coordinated release of additional oil from their respective reserves to cool down raging oil prices. India on November 23 joined the consumers’ group against artificial control of output by the cartel, the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+.
Indian fuel retailers are wary that the cartel, which is meeting on December 2, may cut supplies to check the price fall. “Thus, international crude oil prices may recover again if OPEC+ announces slower than expected production rollout coming up,” the second person said.
In April 2020, when international oil prices plunged below $20 a barrel following global lockdowns due to the Covid-19 pandemic, the producers’ cartel decided to control output. On April 12, OPEC-plus announced an unprecedented 9.7 million barrel a day output cut to check falling crude oil rates.
Despite a rise in demand, the grouping did not restore supplies, which led to a spike in international oil prices. In early November this year, crude prices touched $85 a barrel, forcing the central government to slash excise duty on petrol by ₹5 a litre and diesel by ₹10 a litre to provide some relief to consumers.
Although oil marketers vouch for changing fuel rates daily to reflect the international market dynamics, there has not been any rate change by them in the past 24 days. In Delhi, petrol has been stable at ₹103.97 per litre, and diesel at ₹86.67 since November 4, which central excise duty was slashed.
The three state-run marketers enjoy a virtual monopoly in retail fuel trade in India, with over 90% market share. The petroleum ministry and the three state-run oil firms – Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd – did not respond to emailed queries on the matter.
“Price reduction may not be as sharp as the decline in rates of Brent and WTI because only about 30% of crude OMCs purchase from the spot market, balance 70% is based on long-term contracts,” the first person said.
Fluctuations in international benchmarks such as Brent also impact long-term crude oil contracts as such term-contracts are also linked to benchmark rates, a third person said.
India is the third-largest consumer of imported oil as it imports about 85% crude it processes. The country imported 227 million tonnes of crude oil worth $101.4 billion in 2019-20, which was a Covid-free year.
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