Eye on oil: on oil prices and India

  • Amid the global economic slowdown, the world’s largest grouping of crude oil producers (OPEC+), agreed to extend on-going production cuts into 2024 to keep the oil prices down.
OPEC’s steps to manage in Oil prices:
  • International oil future contracts increased: OPEC major and leading producer Saudi Arabia also voluntarily vowed to reduce output by an extra 1 million barrels per day (bpd) in July.
  • To bring down demand: OPEC+ bloc, which has been striving to curtail supply in order to support prices in the face of flagging demand.
  • Shifting benchmark prices: The shortlived and benchmark Brent crude futures have largely remained below $80 a barrel, after briefly rising above $87 in the wake of the surprise output cut in April 2023.
Impacts on India:
  • Increasing Global Oil prices: India imports more than 80% of its crude oil requirements and the announcements of supply curtailment can become a cause of concern given the potential they have to push up global oil prices.
  • No alternatives left: Western sanctions against Russian energy exports, the price India pays for an imported barrel of oil has been steadily declining.
  • The average monthly price of India’s crude oil basket had declined by as much as 38% from its June 2022.
Present Oil scenario in India:
  • Lack of revenue generation by govt.: Pump prices of petrol and diesel have remained unchanged since May 2022, with the governments at the Centre and the States, and the oil marketing companies unwilling to forego any revenue.
  • Retail price: The inflationary erosion in consumptive capacity, policymakers must reassess their stand on fuel prices.
  • Planning to include oil under GST: The Centre can take the lead and provide a fiscal fillip to the economy by cutting its levies on the key transport fuels.
Question: What are the factors influencing oil prices, and how have they impacted India’s economy and energy sector?
Syllabus mapping:
  • Subject: Economy (GS-III)
    • Sub-topic: Trade and Commerce & Open Economy
  • Introduction: Briefly define oil prices and their significance in global markets.
  • Discuss Factors influencing oil prices
  • Discuss the role of major oil-producing countries and their production decisions (OPEC, non-OPEC nations, and geopolitical factors).
  • Highlight the importance of proactive measures to ensure energy security and reduce dependence on oil in the long run.
  • Summarize the factors influencing oil prices, their impact on India’s economy and energy sector.
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