As of the beginning of 2021, Brent Crude prices were at about $52 per barrel on the back of both increased demand due to global economic growth and supply cuts by key oil producers. In 2020, when crude oil prices were at a low of less than $19 per barrel, the Organization of Petroleum Exporting Countries (OPEC) extended its supply cuts. India’s petrol and diesel prices are based on the international price of petroleum products over a rolling 15-day period.
“Oil Economy” To “Gas Economy”
A 30 per cent rise from the current price of about $84 per barrel is projected by Goldman Sachs for Brent Crude oil to reach $110 per barrel by early next year. According to Goldman Sachs, global oil demand is nearing 100 million barrels per day after Asia’s recent Delta wave recovery. In addition to cheap gas being switched to relatively more affordable oil lately, gas forward contracts may also have played a role.
Goldman Sachs analysts said crude oil prices were still not high enough to lower demand despite falling energy intensity in markets and rising income levels in emerging markets. Goldman Sachs estimates that, via request alone, Brent prices would need to reach $110/bbl in 2022 to balance the deficit expected through Q1 2022.
Fuel prices have increased globally, not just in India. Gasoline prices have risen significantly in the US since 2014, surpassing $3 per gallon on average in 2021. The highest gasoline prices in California were above $4 per gallon, with global oil demand overtaking supply in the range of 6.5 lakh to 9.5 lakh barrels per day.
Global oil prices have increased by 347 per cent in the last 18 months, from $19 a barrel in April 2020 to $85 a barrel in mid-October 2021. As India imports more than 80% of its oil, any surge in Brent Crude price will have a noticeable impact on the country, given that fuel prices are now fully deregulated for gasoline and diesel.
India’s ignorant opposition often alleged that local fuel prices were much lower under the inept UPA-2 government despite global oil prices increasing. Under the inefficient United Progressive Alliance-2 (UPA-2), fuel prices were only partially decontrolled. Similarly, the Modi-led NDA government deregulated diesel prices in October 2014, a bold and long overdue decision unpopular with the public.
Fuel Prices In India
Additionally, don’t forget that the Narendra Modi-led-NDA government inherited and paid for oil bonds purchased by the Congress-led UPA. In addition, the Modi government spent Rs 70,000 crore as interest alone, meaning that over Rs 2 lakh crore was repaid by paying back debt obligations incurred by the earlier Congress government. Hence, the comparison between fuel prices under the Modi government and the lazily acting Congress regime is unjustified.
Taxes levied by the state government account for 41.67 per cent of the final petrol price, while those set by the central government only make up 21.58 per cent. Before sowing discontent with the Modi government, opposition leaders should do a little number crunching, including Rahul Gandhi, whose party, the Congress, makes up a vital part of the ruling coalition in Maharashtra. Maharashtra and Rajasthan, two Congress-ruled states with the highest VAT, both account for almost 50 per cent of fuel prices, along with taxes on disaster management and liquor bans.
On the other hand, States get the most from these taxes because they charge ad valorem rates for gas and diesel and raise the fuel price, thereby increasing their taxes. In addition, it is absurd to talk of rising fuel prices but ignore the fact that the average price of LPG gas cylinders in 2019 ranged around Rs 673-710, as opposed to Rs 1270-1290 in January 2014. The cost of LPG cylinders declined to Rs 594 in 2020. Currently, the LPG cylinder prices are between Rs 884-926. However, worldwide propane and butane prices have risen by 100% in the last year, from $375 per tonne to $800 per tonne.
During the past year, India’s oilseed area expanded, and the production is expected to increase. With migrant workers returning to rural areas after the 2020 Kharif season, the acreage under oilseeds increased by 18 lakh hectares or 10 per cent. There was an increase of 30% in groundnut acres and 7% in soybean acres. Similarly, the 2020-21 Rabi season saw a rise of 4% in oil acreage. A five-per cent increase in mustard area under cultivation results from the crop being planted during the winter cropping season.
For the 2020-21 agriculture season, the third advance estimate of oilseed output projects an increase of 10 per cent to 365 lakh tonnes, with soybean yields up by 20 per cent and mustard crops up by 10 per cent. In light of this, cooking oil prices are expected to decline in the future. In 2021-22, the health budget will grow by 137 per cent over 2020-21.
In September 2021, retail inflation was 4.35 per cent, contrary to the false theories peddled by the opposition party. There was a 0.68 per cent increase in food prices but a 22.47 per cent drop in vegetable prices. The consumer price index (CPI) measures retail inflation as 5.3%, food inflation as 3.11.6%, and vegetable inflation as minus 11.68.
Globally, food inflation is at its highest level since 1970, according to the FAO Food Price Index (FFPI). Food prices are up 33 to 47 per cent worldwide compared with last year due to poor weather, rising freight costs, and supply shortages. Due to depleting forex reserves and increasing import costs, many countries can even import food grains. Modi’s government is managing the food economy commendably, providing a bountiful supply of food.
Gas stations in the United Kingdom have been running out of gasoline in the past few weeks. People who accuse the current government of rising fuel prices should know this fact. Furthermore, the cost of any commodity is highly determinable by demand-supply dynamics. Given the global shortages and rising fuel demand today, India, has seen a rise in prices, but on a relatively smaller scale than other countries.
In short, India’s energy mix will increase by 2.5 times by 2030 to 15.5 per cent from 6.2%, under Prime Minister Narendra Modi. Under PM Modi’s visionary leadership, the “oil economy” is transitioning to a “gas economy”. Eventually, city gas distribution (CGD) facilities will be available in over 400 districts, serving more than 70 per cent of India’s population.
By 2021, more than four times as many homes in India will have access to piped natural gas (PNG) as they did in 2014. In 2014, there were 947 CNG stations in India, but that number rose to 1470 in 2018. There will be 10,000 CNG stations in India. Due to CNG’s substantial savings over petrol and diesel, India will become more independent in many ways.
Article Proofread and Edited by Shreedatri Banerjee