Crude oil rally amid curbs on Russia to boost inflation

Indian fuel retailers reeling from the Covid-induced impact on domestic demand are expected to closely monitor the rapidly unfolding geopolitical tensions before passing on the impact of rising global crude oil prices to consumers. will monitor.

“It is not prudent to increase the pump prices amid the current volatility and we will wait for 10-15 days. Bharat Petroleum Corp Chairman Arun Kumar Singh told ET Now television channel on Wednesday that oil companies have not increased retail fuel prices for almost 90 days in view of the elections.

Oil refineries exceeded their declared capacity for the third consecutive month in January as they sought to make up for earlier production losses due to the pandemic, according to the latest oil ministry data.

However, in a slight respite, oil prices fell on Wednesday, retreating from a seven-year high hit on Tuesday, as the US government said the first wave of US and European sanctions on Russia was unlikely to disrupt oil supplies. Was. Brent crude was down 0.6% at $96.25 a barrel after hitting $99.50 on Tuesday, its highest level since September 2014.

“We are hopeful that these geopolitical issues will be resolved diplomatically. Although crude oil has risen to its seven-year high in the Russia-Ukraine conflict, we are hoping that the gradual lifting of sanctions on Iran may provide some relief by adding 1.3 million barrels of oil per day to the supply. A senior oil marketing company official said production from the OPEC+ cartel has been well below the target.

Russia is not among the largest sources of oil and gas for India, which is the world’s third largest oil importer and consumer. However, the prevailing high oil prices will keep CPI (Consumer Price Index) inflation at high levels for a long time, unless the government sharply cuts excise duty on petrol and diesel to control fuel inflation. Furthermore, as the EU is the largest market for India’s exports, supply disruptions from Russia to the EU are likely to generate higher demand for destinations supplying alternative steel and engineering goods such as India.

“India, despite its long-standing defense-import dependence on Russia, accounts for a negligible (less than 1%) share of Russia’s crude exports, partly because most Indian refineries process the heavy crude exported by Russia. – as well as the transportation cost from Russia to India (in the absence of pipelines connecting the two countries),” ICICI Securities said in a report.

Although Russia accounts for 11% of global crude oil exports, a potential revival of the Iran nuclear deal, which is now in a critical stage of negotiations, could restore nearly half of this supply, about 1.5mmbd (million barrels) of output. per day) and export within a few months.

“If sanctions take about 60% off global markets (with China, Belarus, and some other customers possibly defying sanctions), world crude oil supplies will drop by 3mmbd, and Brent crude will cost $110. BBL However, even with Iran’s possible resumption as a major crude exporter, Brent is likely to remain above $100 a barrel by 2022.”

On the gas front, state-run GAIL (India) Ltd has a long-term liquefied natural gas (LNG) deal with Russia’s Gazprom, in which it has been importing around 2.5 million tonnes (mt) of LNG per year since 2018. Indian companies are also in talks with Russia’s largest LNG producer Novatek for a long-term supply deal.

India’s share in Russia’s natural gas exports is around 0.2%, but at the 21st Russia-India summit last December, the two countries agreed to increase sourcing of Russian crude on long-term contracts through preferential pricing, LNG in India. Potential use of the Northern Sea Route to strengthen imports, and for energy supplies.