Global crude oil prices have surged more than 14% in the last 30 days as traders forecast demand to continue to rise while supply fails to keep up. The latest decision by Oil and Petroleum Exporting Countries to increase output by 400,000 barrels per day is not likely to significantly bridge the demand-supply imbalance.
Furthermore, OPEC’s shrinking spare capacity is viewed as a major impediment to oil-producing countries’ increasing supply to meet soaring global demand as global economies open to the post-COVID-19 epidemic.
The rise in global crude oil prices has also been aided by escalating geopolitical tensions in Eastern Europe, where the US has reportedly warned Ukraine of a Russian invasion “anytime now.”
Crude prices rose by $1 to reach $95 per barrel, the highest since October 2014, as tensions in West Asia heightened fears of supply disruptions, but fuel prices in India remained unchanged for the 95th day due to the government’s refusal to lift the informal freeze on daily price revisions ahead of elections in five states, including the politically important Uttar Pradesh.
Normally, such a big jump in crude would have resulted in a commensurate rise in pump prices, as they did before and after the state elections last year, including in West Bengal. Petrol had surpassed Rs 100 per litre, and diesel had risen to Rs 98, as retailers continued to raise prices in line with crude, except between March 17 and June 6.
This time, too, fuel prices have stayed steady since November 4, when the Centre lowered excise tax by Rs 5 on petrol and Rs 10 on diesel to appease public outrage over increasing pump prices ahead of state elections.
Despite the fact that crude oil prices continued to rise between March 17 and June 6, prior to last year’s high-stakes West Bengal election, fuel rates were not raised between March 17 and June 6. Prices were similarly fixed prior to state elections in Karnataka in 2018 and Gujarat a year earlier.
A fuel price freeze by India’s oil companies while the global crude market climbs could dampen inflationary pressures sufficiently to postpone an interest rate hike, and could result in big political benefits for Prime Minister Narendra Modi.
Despite the oil market reaching a seven-year-high, Indian fuel dealers have kept their prices unchanged since early November, while also lowering petroleum and gas taxes.
Officials from the government and the fuel industry have stated that their goal is to protect consumers in the world’s third-largest oil importer from the volatile global oil and refined fuel prices.
The policy, which is not based on a written government directive but is harming the revenues of oil corporations, coincides with the run-up to critical elections.
Ahead of five state elections next month, the Bharatiya Janata Party (BJP) is confronting public resentment over rising inflation and job losses caused by the COVID-19 outbreak. The performance of the BJP in those elections, particularly in Uttar Pradesh, India’s most populous state, would be a litmus test for Modi’s chances of keeping power in national elections in 2024.