Indian government considers reducing fuel prices
What's the story
The Indian government is contemplating a reduction in fuel prices, following a significant drop in global crude oil prices, according to Business Today TV. This decision comes as crude oil rates have reached their lowest point in nine months. The dip in prices has improved the profitability of Oil Marketing Companies (OMCs), potentially allowing for consumer relief.
Ongoing talks
Inter-ministerial discussions underway to monitor global developments
Inter-ministerial discussions are currently in progress to closely monitor these global developments. The US crude oil experienced a drop of over 1% on Wednesday, falling below $70 per barrel. This has led to speculation that OPEC+ may postpone its planned production increases set for next month. Concurrently, Brent crude oil prices also saw a decrease by $1 a barrel, now standing at $72.75.
Market dynamics
Factors influencing the global crude oil market
The reintroduction of Libyan oil into the market, decision by OPEC+ to lift voluntary production cuts from October, and increased output from non-OPEC sources have all contributed to the downward pressure on prices. Goldman Sachs forecasts that oil prices will oscillate between $70 and $85 per barrel. Even if current lower prices are temporary, the government could still benefit if prices stabilize around $85 per barrel.
Price stability
Government's strategy for steady retail prices
If prices stabilize around $85 per barrel, this would enable the government to ask state-owned retailers to keep retail prices steady. The last time the central government reduced petrol and diesel prices was on March 14, by ₹2 per liter. This move was made just before the general elections. Other factors influencing oil price drop include worries over decreased global demand growth and hopes of resolving political dispute in Libya that had previously halved output and restricted exports.
Market analysis
Analysts predict oil fundamentals are deteriorating sharply
Analysts suggest that oil fundamentals are deteriorating sharply, even as the market focuses on potential supply shocks. Nirav Sheth, CEO - Institutional Equities at Emkay Global Financial Services, believes concerns around oil demand will be the dominant narrative for oil prices, eventually pulling the floor beneath the support at $70 or so. Additionally, OPEC's share of global oil production has slipped from nearly 60% in 2012 to 49% in H1CY25.