Home Business Analysts ring the warning bell for USD 100 per barrel oil – The New Indian Express

Analysts ring the warning bell for USD 100 per barrel oil – The New Indian Express

by Bioreports
21 views
analysts-ring-the-warning-bell-for-usd-100-per-barrel-oil-–-the-new-indian-express

Oil rig

Image for representational purpose only

By Express News Service

CHENNAI:  The troubles for the Union government, which is under immense pressure to cut taxes on petroleum products, may increase further since steadily improving prospects for the global economy and their expected impact on global crude oil prices have led industry analysts to ring the warning bell for the return of $100 per barrel oil. Brent crude has already gone from just $37.5 per barrel at the end of October last year to trading at over $75 on Tuesday—a 100 per cent jump in just half a year. 

While Jeremy Weir, CEO of commodity trader Trafigura, had said  last week that “there was a chance” for $100 oil at the FT Commodities Global Summit, Bank of America Global Research on Tuesday made a more solid forecast for prices hitting the $100 per barrel mark in 2022. “We believe that the robust global oil demand recovery will outpace supply growth over the next 18 months, further draining inventories and setting the stage for higher oil prices,” Reuters reported BofA saying. The investment bank expects Brent crude to now average $68 a barrel in 2021 and go on to an average of $75 in 2022.

High crude oil prices have always presented challenges to India’s fiscal health, since  it imports over 80 per cent of its oil requirements. For Indian fuel consumers, who pay over Rs 100 for a litre of petrol in most states, a further increase in crude oil prices is only set to drive prices to new highs. 

For the Union and state governments, which have sharply increased dependence on fuel taxes, the rise would force an unpalatable choice, either: accept lower tax revenues at a time when pandemic-related relief requires large scale spending, or allow retail fuel prices to keep rising, which in turn will have a cascading effect on other commodities.

The chorus for a reduction in taxes is growing with the Union government’s own advisor on economic matters—Sanjeev Sanyal—recently saying that it is a political call that the government has to take. Recently, CII president TV Narendran had said in a media interaction  that when oil prices are rising the government needs to cut excise on petroleum to protect consumers.   

Headwinds to oil prices still exist though. Oil cartel OPEC is expected to negotiate a further relaxation supply curbs in the second half of this year. OPEC had slashed output by a record 9.7 million barrels per day (mbpd) in April last year, but has already increased output a little between May-July.  Analysts also expect the return of Iranian crude oil supplies if the sanctions imposed by the US on the country are lifted. 

Strong demand


Despite expected headwinds to oil prices such as further relaxations on output curbs by oil cartel OPEC and the likely lifting of sanctions on Iran by the United States, industry analysts now believe that there exists a case for Brent crude prices crossing the $100 per barrel mark next year. BofA analysts note that there is plenty of pent-up mobility demand after an 18-month lockdown and that the lag in mass transit will boost private car usage for a prolonged period of time. “Third, pre-pandemic studies show more remote work could result in more miles driven, as work-from-home turns into work-from-car,” they added.

You may also like

Leave a Comment