Crude oil prices continued to rise in early trade on Wednesday after the US announced sanctions on imports of Russian oil. US President Joe Biden on Tuesday announced an immediate ban on Russian oil and other energy imports, while Britain said it would end Russian oil imports by the end of 2022. Russia exports 4-5 million barrels of oil per day, due to which sanctions on Russian oil have raised fears of a supply crisis. Russia is the second largest crude oil exporter in the world after Saudi Arabia.
Brent Futures May contract at $130.70 a barrel
At around 8.45 am in today’s trade, the May contract for Brent futures on the Intercontinental Exchange was at $130.70 a barrel, up 2.13% from the previous close. West Texas Intermediate (WTI) April contract rose 1.69% to $125.79 a barrel on the NYMEX. Crude oil prices rose after Russia invaded Ukraine and hit a multi-year high of $139.13 on Monday.
India imports 85% of its oil demand
Rising oil prices are a matter of concern for India as India imports 85% of its oil demand. The steady rise in global crude oil prices has increased the Indian energy energy basket including Oman, Dubai and Brent crudes. According to the Petroleum Planning and Analysis data of the Ministry of Petroleum and Natural Gas, it was recorded at $126.32 a barrel on March 7. However, the increase in crude oil prices has not yet been transferred to consumers as retail fuel prices have remained unchanged for more than the last four months. On Wednesday, the retail price of petrol was Rs 95.41 per liter, while diesel was at Rs 86.67 per liter in the national capital.
$10 increase increases CAD by $14-15 billion
Union Petroleum and Natural Gas Minister Hardeep Singh Puri said on Monday that it is up to the oil marketing companies to revise the prices of retail fuel. Addressing the media, Puri also said that the government will ensure that there is no shortage of crude oil in the country. “Oil prices are determined by global prices and there is a war like situation in one part of the world and these will be the factors behind the rise in oil prices,” he said. The continuous increase in crude oil prices will also affect the current account deficit (CAD) to a great extent. An ICRA report recently said that, for every $10 barrel increase in the average price of Indian crude oil, it is likely to increase by CAD 14-15 billion dollars (0.4% of GDP).
There will be a strong increase in CAD if the price rises
“If the price averages $130 in FY2023, the CAD will rise to 3.2% of GDP,” the report said. Mint had earlier reported that the government is assessing the geopolitical situation if crude oil prices rise. The current spurt can be absorbed by state-run fuel retailing companies then it will decide to cut excise duty on fuel.If the Center reduces excise duty on petrol and diesel before April 1, 2022, the ICRA report said. If reinstated at pre-pandemic rates, the budget increases by Rs 2 per liter each on unrelated fuels in H2 FY2023, the estimated revenue loss to the Center in FY2023 would be around Rs 90,000 crore.