EXPLAINED: How Global Fuel Prices Impact India

Owing to the rise in crude oil prices, a record rise in the petrol and diesel prices is regularly experienced across India in 2021. A record rise in the price of coal and natural gas is also seen amid an intensifying energy shortage. Why are fuel prices rising and how rising global fuel prices are impacting India?

How Global Fuel Prices Impact India

As the world economy recovers, the global demand for crude oil has increased sharply. The Brent Crude price has risen to $85 per barrel, which is the highest since 2018. A year ago the price was $42.5 per barrel.

Despite the sharp increase in prices, OPEC+ group of oil producing countries have decided to increase the total crude oil supply by only 400,000 barrels per day for the month of November.

All the top oil producing countries like UAE, Saudi Arabia, Russia, Kuwait and Iraq will produce 14% less than the reference levels after the increase in November.

There was a sharp decline in demand in 2020 owing to the pandemic and the restrictions in global travel. OPEC+ agreed to decrease the supply.

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However, now when the demand is rising again, the organisation is slow in responding to the increased demand.

Various oil importing countries like India have called OPEC+ to boost crude oil production and supply as higher crude oil prices may hamper the recovery of the global economy.

Natural gas supplies in Asia hit an all-time high price ($56.3 per mmbtu) for the deliveries in November.

Moreover, the US is also facing supply side issues owing to the disruptions caused by hurricane Ida and lower supply of natural gas from Russia. The US may experience natural gas shortage in winter.

EXPLAINED: How Global Fuel Prices Impact India

Also the international coal prices have also reached all-time high. Countries like China are facing coal shortage, resulting in power outages in factories across China. It is happening because global demand has increased at a much faster rate than expected.

The price of Indonesian coal has increased from $60 per tonne (in March) to $200 per tonne in October.

How Global Fuel Prices Impact India

After the prices of Indonesian coal doubled, Adani’s plant at Mundra and Essar Power’s plant at Salaya stopped supplying power to Gujarat.

Facing energy crisis the Gujarat government has decided to buy power from Tata at a rate higher than mentioned in the purchase agreement.

High crude oil prices have resulted in rise of the petrol and diesel prices regularly in 2021. The price of petrol in the national capital has increased by Rs 4.65 per litre over the last three weeks while the price of diesel has increased by Rs 5.75 per litre over the same period.

The price of petrol and diesel in national capital is Rs 105.84 per litre and at Rs 94.6 per litre respectively.

S&P Global Platts Analytics did predict that demand for diesel will increase owing to the festive season. It also predicted that it will be only by 2022 that India’s total demand for crude oil would only surpass pre pandemic levels.

Prices of domestically produced natural gas have been raised owing to the rise in international gas prices. The price of natural gas produced by state owned ONGC and Oil India has been increased to $2.9 per mmbtu by the Petroleum Planning and Analysis Cell (PPAC). Six months ago the price was $1.79 per mmbtu.

The increase in gas prices also resulted in increase in price of both Compressed Natural Gas (CNG) used as a transport fuel and Piped Natural Gas (PNG) used as a cooking fuel.

The price of CNG was hiked twice by a total of Rs 4.56 per kg this month in the national capital and the price of PNG rose by Rs 4.2 per scm (standard cubic meter). The price of CNG and PNG has risen to Rs 49.8 per kg and Rs 35.11 per SCM respectively.

India’s thermal power plants are also experiencing coal shortage owing to the rise in international coal prices. Importing coal for electricity production may further increase the electricity cost. States like Punjab and Rajasthan are also facing coal shortages and had to buy power at quite a higher prices.

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