Brent slipped $2.6/barrel, or more than 3%, to $80.97. A lurking apprehension over another production cut by the Opec+ grouping of oil exporters, including Russia, contributed to the sharp fall. The grouping is scheduled to meet on December 4 on the current production limits.
Brent has been losing steam for three consecutive weeks now. As a result, the cost of ‘Indian Basket’ – or the mix of crude bought by Indian refiners – has dropped to $82/barrel from an average of $112.8 in March.
The trend bodes well for consumers and the economy. The current petrol and diesel prices reflect oil at about $85/barrel. The recent drop, thus, leaves scope for a cut in fuel prices if oil stays at this level or falters further in the coming days.
Fuel prices were last cut on May 22 when the government reduced excise duty by Rs 8 on petrol and Rs 6 on diesel as a relief to consumers after Brent spiked following Russia’s invasion of Ukraine on February 24. Fuel prices have remained frozen since then, which, market watchers said, led to under-recovery of Rs 10 on petrol and Rs 14 on diesel in the April-June quarter.
Earlier this month petroleum ministry officials hinted the margins (over-recovery), considered a notional value by many, were in the green zone but there was some cash loss yet to be wiped out.
A reduction in pump prices, the first since May 22 when it happens, will help ease inflation further and allow the RBI to space out monetary tightening as suggested by the industry.
Lower crude prices will also ease forex outflow to pay for oil imports, currently pegged at 85% of demand, lifting some pressure on current account deficit. This will have a positive impact on the rupee and government finance.
Analysts said recent estimates indicating slowing India growth rate could add to the downward pressure, given the country is the third largest crude importer after China and the US, both of which are showing signs of a slowdown.
But much will depend on the Opec+ decision.
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