Fuel price cut unlikely as Middle East tensions drive crude oil surge: Report
The anticipated reduction in fuel prices now seems unlikely due to a sharp increase in crude oil prices driven by the ongoing conflict between Iran and Israel.
Media reports had earlier suggested that oil marketing companies (OMCs) were considering lowering fuel prices ahead of the upcoming assembly elections and the festival season, but recent developments have changed the situation.
Government officials have informed Business Today TV that the sharp rise in crude oil prices—over 5% this week alone—has made it difficult to reduce fuel prices in the near future.
The conflict in the Middle East has pushed oil prices higher, with Brent crude oil prices increasing significantly, affecting global supply.
Last month, Brent crude prices were at a near three-year low, and there were discussions about passing on some of the benefits to Indian consumers through lower fuel prices.
However, the situation has reversed, and fuel prices remain unchanged despite the elections in Jammu & Kashmir being over and Haryana’s elections taking place on Saturday.
“With the global supply situation changing in the past week, it may not be the right time to cut prices right now,” an official said as quoted in the report. The Ministry of Petroleum & Natural Gas and the Ministry of Finance are closely monitoring the situation, along with the Prime Minister’s Office.
Vinod Nair, Head of Research at Geojit Financial Services, said, “The spike in oil prices due to the mounting tensions in the Middle East may add input cost inflation and thereby impact the earnings visibility of domestic companies.”
“Rising oil prices could add pressure on India’s fiscal deficit, forcing the government to reallocate funds from key infrastructure or public welfare projects to cover the higher costs,” said Trivesh D, COO of Tradejini.
The conflict between Iran and Israel has caused crude oil prices to rise by $7 per barrel in just a week, following Israel’s bombing of a bunker in southern Beirut. As a result, the Indian crude basket, a mix of several kinds of imported crude, rose by about $3 per barrel since the end of September, reaching $75.22 on October 3.
OMCs have already announced a Rs 48.50 increase in the price of 19-kg commercial LPG cylinders earlier this month. The rise in LPG prices is also attributed to the ongoing situation in the Middle East, as OMC margins have not yet fully recovered.
Oil prices surged by more than 5% this week, with Brent crude nearing $75 a barrel. Traders are concerned about supply disruptions amid the escalating conflict. Goldman Sachs has predicted a $20 per barrel price increase if Iran’s oil supply is significantly affected. Citigroup Inc. also warned that a large-scale attack on Iran’s oil infrastructure could reduce global supply by 1.5 million barrels per day.
Shares of Indian oil marketing companies, including Indian Oil Corp, Bharat Petroleum, and Hindustan Petroleum, have dropped in response to the rising crude prices.
The uncertainty over the ongoing conflict and its potential impact on global oil supply continues to weigh heavily on the market.