There could be more bad news for fuel consumers who may not get any respite from flaring fuel prices in the near future. Three Wall Street banks – Goldman Sachs, Morgan Stanley and Bank of America – have forecast oil at $70/barrel in the next few months and even a spike to $75 thereafter.
In a sign of things to come, benchmark Brent crude on Tuesday hit $65.50/barrel on positive signals from the demand front, expectations of lower inventories and US production taking longer than expected to recover from the deep freeze. India’s crude (mix of Dubai-Oman and Brent) purchase cost stood at $62/barrel on Monday.
If oil prices follow the trajectory forecast by the investment banks, at $70/barrel of Brent, regular petrol would become costlier by at least Rs 2.75 a litre and diesel by, say, Rs 3 in Delhi, the reference market. The increase will be higher in states with heavier taxes.
This is because, industry analysts said, every dollar increase in crude price pushes up petrol price by 55 paise a litre and diesel by 58-60 paise (as per current taxes in Delhi).
The mix of crude bought by India costs $3 less than benchmark Brent. So at $70/barrel of Brent, the price of Indian basket would rise $5 from Monday’s level. Such an increase would push regular petrol price beyond Rs 100 a litre in Mumbai and many cities in states with high VAT or cess. In Delhi, petrol would be in touching distance of Rs 100 a litre.
The only hope for consumers, thus, lies in the central and state governments reducing fuel taxes, or the OPEC-Plus grouping of oil-producing countries deciding to raise output at its meeting next week. Rajasthan, Assam, Meghalaya and West Bengal are the only states that have reduced tax so far.
Goldman on Monday said oil would hit $70/barrel in the April-June period and spike to $75/barrel in the July-October quarter (calendar year) on faster rebalancing of the market. What is worse for consumers, it said even an OPEC+ decision to raise output would not calm prices as supply would still lag behind demand.
On Tuesday, Morgan Stanley and Bank of America echoed the view by raising earlier projections by $10 by saying oil prices would average $60/barrel this year and spike to $70 in between.
