This Article is From Dec 11, 2016

Petrol Prices Could Touch Rs 80/Litre On Rising Global Oil Rates: Report

Petrol Prices Could Touch Rs 80/Litre On Rising Global Oil Rates: Report

Petrol and diesel prices are deregulated in India, which means they are linked to market rates.

Highlights

  • OPEC reached an agreement to cut output by 1.2 million barrels per day
  • Non-OPEC producers are expected to add an output cut
  • Petrol and diesel prices are deregulated and are linked to market rates
The price of petrol could touch Rs 80 and diesel Rs 68 per litre if global oil rates surge to $60 a barrel, says a report from credit ratings agency CRISIL. Global oil prices have surged to nearly $55 per barrel, following an agreement by the Organization of Petroleum Exporting Countries (OPEC) to cut production.

OPEC, which accounts for nearly one-third of global oil output, on November 28 reached an agreement to cut output by 1.2 million barrels per day (mbpd) from January 1, its first reduction since 2008. Global oil prices have already surged by 19 per cent since then.

Non-OPEC producers are expected to agree to add an output cut of 0.6 million barrels per day at a meeting on December 10 in Vienna.

"The price of Brent crude could increase to $50-55 per barrel by March 2017 following OPEC's move, and if it surges to $60 as some believe, the price of petrol could touch Rs 80 and diesel Rs 68 per litre," the CRISIL report said.

CRISIL on its part expects global crude price to remain between $50 per barrel and $55 per barrel for first half of calendar year 2017.

This could mean that the "price of petrol could rise 5-8 per cent and that of diesel by 6-8 per cent over the next three to four months. In Mumbai, that would mean petrol price could top Rs 75 per litre compared with Rs 72 now, and diesel more than Rs 64 compared with Rs 60 now," the report said.

Petrol and diesel prices are deregulated in India, which means they are linked to market rates. Oil marketing companies revise their prices every fortnight, depending on global oil rates and the rupee's movement against dollar. India imports more than three-fourth of its crude oil requirement. So apart from global oil prices, the value of the rupee as well as the margins of oil marketing companies and the various government levies determine the final price of petrol and diesel price in India.

Analysts, however, are sceptical over the long-term impact of the OPEC's move on oil prices. "A cut in production always lifts prices, but the success of the OPEC agreement depends on adherence. Previously, there have been instances of members breaking away from the cartel because of domestic compulsions," CRISIL said.

"What will also curb a runaway rise in crude prices is that above $50, many shale producers in the US become viable once again. Approximately, 0.3-0.4 mbpd of production could return from these areas," the report said.

In addition, with the financial situation of the US oil and gas industry improving compared with last year, "we expect production ramp-ups to be faster next year, which, in turn, would act as a natural check on crude prices", CRISIL added.
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