New Delhi: With Saudi Arabia and Russia simultaneously announcing extension of oil production cuts till the end of this year, there are fresh speculations about whether the government can afford to cut prices of petrol and diesel ahead of the general elections next year. Earlier, speculations were fuelled about cut in petrol and diesel prices following the reduction of the price of cooking gas cylinder by Rs 200 last month.
In calibrated announcements on Tuesday, Russia and Saudi Arabia said that they will continue with their voluntary oil production cut till the end of this year. According to a statement released by the official Saudi Press Agency, the head of the Organisation of Petroleum Exporting Countries (OPEC) would continue the reduction of one million barrels per day (bpd) till December. State-run Russian news agency Tass quoted Alexander Novak, Russia’s deputy prime minister and former energy minister, as saying that Moscow would continue its 300,000 barrels a day cut till the end of this year.
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The simultaneous announcements by the two countries pushed prices of Brent crude above $90 a barrel, a price not seen since October last year. Brent crude had traded at between $75 and $85 a barrel all this time while West Texas Intermediate, a benchmark for the US, traded at around $87 a barrel. Riyadh first applied the 1 million barrel per day reduction in July and has since extended it on a monthly basis. Russia’s Novak was quoted as saying that the decision “is aimed at strengthening the precautionary measures taken by OPEC+ countries in order to maintain stability and balance of oil markets”.
Govt caught in a bind
With the Lok Sabha elections around the corner, can the government now afford to reduce the prices of petrol and diesel on the lines of the cooking gas cylinder? “It is a political call,” Pronab Sen, former principal economic adviser to the Planning Commission, told ETV Bharat. “It all depends on the government. Since most of the oil companies are owned by the government, it can afford to announce a price cut.”
Sen said that the oil production cut is nothing new and has happened earlier too. It is aimed at pushing oil prices up. “Usually, production cut in Russia has a global spillover effect very fast,” he said. “But this time, it will not happen that fast because of the international embargo on Russia (over the Ukraine war). Prices will rise but after a time lag.”
Sen said that because of the sanctions against Russia, India and other countries are having to shift their sources of oil supply elsewhere. Russia’s share of India’s oil imports decreased to 34 per cent in August this year, down from 42 per cent in July. In August, Russia’s overall oil supplies dipped by 23 per cent compared to July. According to energy cargo tracker Vortexa, during the same period, India’s overall crude imports also declined by 5 per cent reaching 4.35 million barrels per day. Reports suggest that the decrease in Russia’s oil exports is because of its cut in crude production and meeting domestic demand.
