STA­BIL­IS­ING FUEL PRICES

K Raveen­dran writes about the re­lief from con­trar­ian oil price sce­nario COM­ING TRUE AF­TER FLUC­TU­A­TIONS IN THE PAST

Millennium Post - - Front Page -

It will be quite a while be­fore any price sta­bil­i­sa­tion ef­fort can take hold on the mar­ket. That should pro­vide enough el­bow room for PM and his rul­ing al­liance to face the elec­tions with­out any worry on the price front, although they have enough in their hands by way of other is­sues

When petrol and diesel prices were head­ing up to their his­tor­i­cal heights in the mid­dle of last year, this col­umn had made a con­trar­ian pro­jec­tion (Modi’s oil stars may be turn­ing benev­o­lent again, June 29) that by the time Prime Min­is­ter Modi would be about to demit of­fice at the end of his ten­ure, his ‘oil stars’ may turn favourable again. Of course, the pro­jec­tion was made on the ba­sis of likely de­vel­op­ments in the in­ter­na­tional crude mar­kets as un­der­stood by an­a­lysts, although such a dras­tic change within the pro­jected time­frame may have ap­peared highly un­likely at that time.

But such a sce­nario has turned real by now. As Modi and his NDA pre­pare to face the 2019 Lok Sabha elec­tions, prices of petrol and diesel have come down to such lev­els that the prime min­is­ter has no wor­ries on this front, which was not the case six months ago. For in­stance, petrol prices have eased by Rs12 a litre over the past three months. And if he

loses the op­por­tu­nity for a sec­ond term, it may not be due to in­fla­tion caused by high fuel prices, but other fac­tors, of which there are plenty.

Con­trast to­day’s prices with those pre­vailed in Oc­to­ber last year. Petrol and diesel prices had touched record lev­els

last year, with petrol sell­ing at 82.72 per

litre in Delhi, Rs. 88.18 in Mum­bai, Rs. 84.54 in Kolkata and Rs.85.99 per litre in Chen­nai as on Oc­to­ber 15. The con­tin­ued spike forced Modi to call a meet­ing of the oil com­pany chiefs, which was pre­ceded by fi­nance min­is­ter Arun Jaitley an­nounc­ing a cut in ex­cise duty by Rs.1.50 a litre. Ad­di­tion­ally, the sta­te­owned oil mar­ket­ing com­pa­nies were man­dated to re­duce prices of petrol and diesel by Re 1 a litre each.

Modi was lucky to reap the ben­e­fit of an oil bo­nanza when he took of­fice in 2014 as it co­in­cided with a crash in global crude oil prices. Since he as­sumed charge in May, the price of the In­dian bas­ket of crude oil crashed from $113 per bar­rel to $50 by Jan­uary. The dream run went on for a year when the price fur­ther tum­bled to $229. This put the Modi govern­ment in a unique sit­u­a­tion to man­age the fis­cal deficit and al­lo­cate re­sources to the new govern­ment’s pri­or­ity pro­grammes if there were any.

As 2018 ap­proached, the oil stars in

Modi’s horoscope ap­par­ently started look­ing away. In­ter­na­tional crude oil prices were climb­ing con­sis­tently and, with dy­namic pric­ing of petroleum prod­ucts in place, this meant that con­sumers had to dish out more for the same quan­tity and dis­con­tent was grow­ing as peo­ple felt that the govern­ment was help­ing the oil com­pa­nies to sur­rep­ti­tiously make more money. But with the an­nounce­ment of Kar­nataka elec­tions, the oil com­pa­nies froze the hikes.

As soon as the elec­tions got over, how­ever, oil com­pa­nies started rais­ing the prices with a vengeance, lead­ing to hue and cry as prices hit his­tor­i­cal highs even sur­pass­ing the peak of the crude oil price boom. And it ap­peared that the sky­rock­et­ing oil prices would be the big­gest stum­bling block to the

NDA govern­ment in seek­ing a re­turn to power. Peo­ple’s frus­tra­tion over the is­sue was clearly man­i­fested by the by­elec­tion re­sults, nearly all of which went against the rul­ing al­liance.

But as Modi’s ‘oil luck’ would have it, things soon be­gan to turn in his favour once again. With OPEC leader Saudi Ara­bia bro­ker­ing a deal with Rus­sia and mem­bers of the car­tel to turn the tap open for more oil to flow into the mar­ket, crude oil prices be­gan to plunge. A move by the OPEC to add one mil­lion bar­rels per day of crude pro­duc­tion across the car­tel mem­bers to sta­bilise the mar­ket ac­tu­ally de­pressed the mar­ket be­yond the de­sired lev­els. Now there is com­pe­ti­tion among the pro­duc­ers to re­tain their re­spec­tive mar­ket shares, which is putting fur­ther pres­sure on prices.

The price col­lapse of over 40 per cent in the last quar­ter of 2018 alone has now prompted OPEC and other oil pro­duc­ers to pur­sue an­other pro­duc­tion cut to buoy the mar­ket, but there are un­cer­tain­ties over how play­ers like Rus­sia would re­spond to such a move as they need to pro­duce more to keep their econ­omy go­ing. But it will be quite a while be­fore any price sta­bil­i­sa­tion ef­fort can take hold on the mar­ket. That should pro­vide enough el­bow room for Modi and his rul­ing al­liance to face the elec­tions with­out any worry on the price front, although they have enough in their hands by way of other trou­bles.

(The views ex­pressed are strictly per­sonal)

(Representational Im­age)

As elec­tions ap­proach, fuel prices have come down to such lev­els that there are no wor­ries on this front, un­like the scene six months ago

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.