Rising Global Fuel Prices

Rising Global Fuel Prices

Subject – Economy

Context – Impact on India with rising global fuel prices

Concept –

• As the global recovery gains strength, the price of crude oil is nearing its highest level since 2018, while the price of natural gas and coal are hitting record highs amid an intensifying energy shortage.
• The price of Brent Crude breached the $85 per barrel mark earlier this week reaching its highest level since 2018 on the back of a sharp increase in global demand as the world economy recovers from the pandemic.
• Key oil producing countries have kept crude oil supplies on a gradually increasing production schedule despite a sharp increase in global crude oil prices.
• In its latest round of meetings, the OPEC+ group of oil producing countries reaffirmed that they would increase total crude oil supply by only 400,000 barrels per day in November despite a sharp increase in prices.
• The output of the top oil-producing countries – Saudi Arabia, Russia, Iraq, UAE and Kuwait — would still be about 14 per cent lower than reference levels of production post the increase in November.
• OPEC+ had agreed to sharp cuts in supply in 2020 in response to Covid-19 global travel restrictions in 2020 but the organisation has been slow to boost production as demand has recovered.
  • India and other oil importing nations have called on OPEC+ to boost oil supply faster, arguing that elevated crude oil prices could undermine the recovery of the global economy.
• Natural gas deliveries to Asia hit an all-time high of $56.3 per mmbtu (Metric Million British Thermal Unit) for deliveries in November, according to SP Global Platts.
  • Supply side issues in the US including disruptions caused by hurricane Ida and lower than expected natural gas supplies from Russia amid increasing demand in Europe have raised the prospect of natural gas shortages in the winter.
• International coal prices have also reached all-time highs as China faces a coal shortage that has led to factories across China facing power outages.

Impact on India –

• High crude oil prices have contributed to the prices of petrol and diesel regularly setting new record highs across the country in 2021.
• India has seen a faster recovery in the consumption of petrol than of diesel after pandemic-related restrictions with petrol consumption up 9 per cent in September compared to the year ago period but diesel consumption remaining 6.5 per cent below 2020 levels. Diesel accounts for about 38 per cent of petroleum product consumption in India and is a key fuel used in industry and agriculture.
• High international gas prices have led to an upward revision in the price of domestically produced natural gas. The Petroleum Planning and Analysis Cell (PPAC) set the price of natural gas produced by state owned ONGC and Oil India under the nomination regime to $2.9 per mmbtu up from $1.79 per mmbtu in the previous six month period.
• The increase in gas prices has put upward pressure on the price of both Compressed Natural Gas (CNG) used as a transport fuel and Piped Natural Gas (PNG) used as a cooking fuel.
• High international prices of coal have added to a coal shortage at India’s thermal power plants by forcing thermal plants using imported coal that could not pass on the higher price of coal to procurers to stop supplying power. Low coal stocks at a number of coal fired thermal power plants have led to power outages in a number of states including Punjab and Rajasthan and have forced states to buy power at well above normal prices on the power exchange.