Crude prices continue to climb in the Russian-Ukrainian conflict
Rising prices are a concern for India as it depends on imports to meet 85% of oil demand and 55% of natural gas needs. India, the world’s third largest oil importer, spent $62.71 billion on crude oil imports in FY21, $101.4 billion in FY20 and $111.9 billion. dollars in fiscal year 19.
Global oil prices rallied, with Brent trading at $101.30 a barrel, up 2.22%, and West Texas Intermediate up 2.12% at $94.93 a barrel.
The cost of India’s basket of crude, made up of Oman, Dubai and Brent, was $100.71 a barrel on Thursday.
This relentless spike in crude oil prices, while hurting the country’s import bills and current account deficit, will eventually hit the common man with its eventual impact on inflation and retail fuel prices.
In the national capital, the price of gasoline was ₹95.41 per litre, while the diesel was ₹86.67 per liter. Retail prices have been stable for more than three months now, mainly due to the ongoing legislative elections. Experts, however, expect a resumption of rising fuel prices after the elections.
In a research note, S&P Global Platts said that for every 10% increase in crude oil prices, the Wholesale Price Index (WPI) increases by 0.9% to 1% and the Price Index at consumption from 0.4% to 0.6%. A 10% rise in oil prices increases India’s current account deficit by almost $15 billion, or 0.4% of its GDP, leading to a depreciation of the rupee.
Retail inflation accelerated to a seven-month high in January, driven by rising food and manufactured goods prices, topping the Reserve Bank of India’s 6% upper tolerance band for inflation. first time since June, according to official data. Wholesale price inflation, however, hit a three-month low in January after hitting a series of highs in November due to lower prices for manufactured food and crude oil and natural gas.
However, inflation is expected to remain high in the quarter due to high crude oil and commodity prices, driven by geopolitical tensions surrounding Russia and Ukraine and an unfavorable base, economists warned.
With a possible rise in inflation, this is the outlook for growth in the economy affected by the pandemic. A Brickwork Ratings report released on Friday said the GDP growth rate in FY22 is expected to be around 8.3%, revising its previous estimate from 8.5% to 9.0%.
Lim Jit Yang, Oil Markets Advisor at S&P Global Platts Analytics, said, “High oil prices will dampen demand and undermine the fragile economic recovery if they continue to rise.”
Along with the third wave of Covid that hit the country in January, the shortage of semiconductors and the shortage of coal, rising international prices for crude oil and inputs have also compounded the problem, Brickwork said.
On Thursday, Brent initially broke above $105 a barrel for the first time since 2014, after Russia attacked Ukraine, triggering supply problems.
Russia’s full-scale invasion of Ukraine by land, air and sea is the largest state-on-state attack in Europe since World War II.
In response to the invasion, the United States imposed several sanctions on Russia. Europe and the UK have also pledged to impose sanctions on Russia.
These sanctions should also affect oil supplies.
Crude oil exports from Russia are around 4-5 million barrels per day (bpd). India is among the country’s top crude buyers along with China, the European Union, South Korea and Japan.
As concerns grow daily, the government is on guard to limit the impact of external factors on the Indian economy.
Earlier this week, Finance Minister Nirmala Sitharaman said Russian-Ukrainian tension and a spike in crude oil prices posed a risk to the country’s financial stability and the government was monitoring the situation closely.
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