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Global oil prices rise

Earlier this month, oil prices returned to pre-pandemic levels.

The price is hovering around $60 per barrel, vis-à-vis $20 per barrel in April, 2020.

Brent crude Futures has risen by more than 50% since October, 2020.

Will we have to keep paying more?

It depends on OPEC+ meeting scheduled for next month. ['+' refers to Russia]

Saudi Arabia 'doesn't want to increase supply'.

Russia 'wants to proceed with supply increase'.

An 'artificial shortage' is draining up the prices.

1. Saudi Arabia cutting production: In Jan, 2021 Riyadh holds back 1Million barrels.

2. Winter storm in Texas: Texas is an oil state in US. This storm has freeze 40% of America's production.

Oil producers losing money

Biggest oil companies bleeding with losses.

Oil exporters are still hurting.

Why the price jump is not good enough?

Oil prices expected to remain below $50/barrel through 2022 per World Bank estimate.

Gulf countries reel under the pandemic shock.

- Average Budget deficit in 2020 -- 9.2%

- Average Budget deficit in 2021 -- 5.7%

- Central government deficits could touch $490 Billion between 2020 and 2023.

- Government Debt could surge by $100 Billion.

Major oil companies take a big hit.

(Losses in 2020)

ExxonMobil -- $20 Billion

ConocoPhillips -- $2.7 Billion

British Petroleum -- $5.7 Billion

Climate action is poised to punch a $9 Trillion hole in petrol states' budgets.

40 countries most reliant on fossil fuel income could see oil reserves fall by an average of 46%, a total of $9 Trillion over the next 20 years due to international initiatives to meet the Paris Agreement's emission targets. [Source: Quartz.com]

What's India's oil strategy?

- India, world's 3rd largest oil market.

- India consumes nearly 211.6 Million tonnes of oil/year.

- India produces less than 35Million tonnes of oil/year.

- India imports nearly 85% of its crude.

- India has the highest tax in fuel.

- India imports oil from West Asia, Canada, US.

Should India consider importing oil from Iran?

People of India paying through the nose, India petrol price Rs.100/Litre.

Global petrol price-$60/barrel, nearly Rs.28 per Litre.

Then why Rs.100/Litre? - Taxes

Pricing of Petrol and Diesel in India

2/3 of what you pay is Excise duty and taxes, base price of the fuel, transport charges, dealer charges are just a portion of pie.

Example:

Petrol in Delhi Rs.89.29/Litre on 16th, Feb, 2021.

            Base price -                 Rs.31.82

            Freight -                      Rs.0.028

            Price to dealers -          Rs.32

            Excise duty -                Rs.32.9 [Levied by Union government]

            Dealer commission -     Rs.3.68 [changes to location]

            VAT -                           Rs.20.61 [Levied by state government]

                                            ----------------------

                                               Rs. 89.29/Litre

                                            -----------------------

260% on the Base price of Petrol - Taxes

256% on the Base price of Diesel - Taxes

How much are you taxed?

Country                    Tax on Fuel

-------------              ---------------

Germany                       65%

Italy                             65%

UK                                62%

Japan                            45%

U.S                               20%

India                             260%

What can be done?

- Government can intervene and regulate the prices.

Currently, oil retailers in India can fix prices of petrol and diesel, factor-in their own costs, which depends on the price in international oil markets. They also factor-in their profits.

Earlier, the prices of petrol and diesel were regulated by government. It paid subsidies to oil marketing companies. This shielded consumers against turmoil in the international oil markets.

In extreme cases, perhaps Government can still intervene.

- Diversify imports

India relies on West Asia heavily, nearly 61%.

India can resume imports from Iran and Venezuela now, with Biden in the office.

Zero oil imports from Iran since 2019. Compared to 2018-2019, India imported 23.5 million tonnes of Iranian oil. (1/10 of India's requirement). It was also cheaper comparatively.

India's strategy to put oil in check:-

1. Explore new markets and find a way to work around American sanctions.

2. Re-think high taxes.

3. Regulate in extreme circumstances.

4. Explore new reserves at home.

5. Work for future independent of oil.

Going green is a safest sustainability for our pockets and earth.


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