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Crude oil $86/barrel, fuel hike feared

The fuel prices have remained steady since November 4 after the Central government cut excise duties on petrol and diesel by Rs 5 and Rs 10 respectively.

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Mumbai: The global crude oil price rally has stoked fears of oil marketing companies raising prices of diesel and petrol.

As NYMEX crude traded above $86 per barrel, the highest level since October 2014, sector experts see an upward revision in retail prices of the two key auto fuels although the elections in five states may influence the decision.

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The fuel prices have remained steady since November 4 after the Central government cut excise duties on petrol and diesel by Rs 5 and Rs 10 respectively. Then states reduced VAT on the two fuel items.
“Prices will go up. If international crude oil prices have gone up, you will definitely see it getting recovered (by oil companies),” said Deepak Mahurkar, Partner and Leader Oil & Gas, PwC India.

He explained that there was a lot of time lag in terms of weeks for price rise.

“No oil company is meant to do charity for anyone. They will recover the money in any which way. They will do it in one week, in five weeks. They will increase (prices of) not diesel, petrol but FO/LSHS (Furnace Oil/Low Sulphur Heavy Stock) prices. They will increase jet fuel. So, this cross-subsidisation of fuel can happen,” said Mahurkar.

Amid growing geopolitical tensions and rising concerns over supply, crude oil rallied sharply on Wednesday trading above $ 86 per barrel. While the Nymex crude traded at $ 86 per barrel, the Brent crude was trading at $ 87 a barrel.

“Nymex crude trades over one per cent higher above $86 per barrel and has tested the highest level since October 2014. Crude oil has rallied sharply on supply concerns amid increased Russia-Ukraine tensions, threats of more attacks on the UAE by Yemeni Houthis and shutdown of a Iraq-Turkey pipeline. Also supporting price is OPEC’s robust demand outlook,” Kotak Securities CMT, EPAT, VP-Head Commodity Research, Ravindra Rao, said.

He said crude has continued to set fresh highs, indicating bullish sentiment, and prices may remain higher ahead of the US inventory report on Thursday.

Recently, Goldman Sachs in a report has said it sees Brent prices at $90 per barrel in the first quarter of 2022, $95 a barrel in the second quarter and reaching $100 in the last two quarters.

Oil prices remained at higher levels during the October-December quarter of the current financial year as incremental oil production was lower than anticipated leading to a deficit.

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