On Monday, oil prices rose beyond $93 a barrel, briefly approaching $94, while domestic fuel prices stayed unchanged, stoking fears of a big price increase after five states’ elections next month.
Fears that Omicorn would depress oil demand caused crude oil prices to drop to $69 per barrel on December 1 from $81 per barrel on November 4, but when the third wave of Covid-19 proved to be less severe than the previous waves, prices progressively rose a third to $93.
Geopolitical tensions over Ukraine between Russia, one of the top three oil producers, and Western powers are fueling the current spiral, which comes at a time when supply is constrained due to a combination of artificial supply limitations and years of underinvestment.
Oil prices have risen $12 per barrel, or 15%, on the world market since November 4, while domestic fuel costs, which are based on international rates, have remained unchanged. “Politics, not economics, is dictating the current behavior of domestic oil businesses,” said Sunil Kumar Sinha, principal economist at India Ratings and Research. “We should be prepared for a stunner after the elections if international oil prices remain at this level.”
Domestic oil marketing businesses, according to Sinha, are likely to boost prices significantly after the elections to match domestic prices with international rates and make up for any losses they may be experiencing now. “This will have a significant effect on inflation and inflationary expectations,” he said.
Small daily price adjustments are easier for customers to live with than large, abrupt price increases, according to Sinha, since they give them time to modify their behavior. “It’s a jolt, and it transfers as abruptly into transportation costs and other commodities pricing,” he said.
MK Surana, chairman of Hindustan Petroleum Corporation, stated last week that retail prices of petrol and diesel will be matched with international pricing over time, but that daily price swings will be inconvenient for customers due to the volatility of international rates.
Companies face exceptional increases and contraction in their margins by not passing on the rise and decrease in overseas prices to domestic consumers.
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