Global oil prices rise again

NEW DELHI, MAY 7. Global oil prices have begun to rise once again, prompted by fears that offshore oil fields in Norway may shut down next week. This Scandinavian country, the world's second largest oil exporter, has been hit by industrial strikes lately which have affected tanker loading and may extend to some offshore fields soon.

As a result, prices of the benchmark Brent crude oil have already crossed $ 25 a barrel, one dollar higher than last week. The Dubai crude used by Indian refineries has also firmed up to $ 24.38 a barrel.

The sudden spurt in prices is causing concern in the Petroleum and Finance Ministries as it is bound to find reflection in a higher oil pool account deficit. The recent decline in world oil prices following the decision of the Organisation of Petroleum Exporting Countries (OPEC) to raise the output had meant the deficit would be reduced substantially in the current financial year. But if prices continue to harden in this manner, the deficit may instead be larger than anticipated.

In such a scenario, it appears the prospects for a rollback in the prices of kerosene and LPG are remote at best. Even at the lower global oil prices prior to last week, the Ministry estimated the deficit would remain around Rs. 6,000 crores by the end of the year. With prices of the Dubai crude having crossed $ 24 a barrel, it is now likely this would be about Rs. 7,000 crores. A precise estimate would be available after watching price trends over the next few weeks.

As for rollback in the prices of kerosene and LPG, the two Ministries have been resisting all such proposals till now. The Opposition parties as well as the coalition partners of the Bharatiya Janata Party have been calling for a rollback on the ground that the price increase carried out in March will hurt the common man. The Government has been arguing in its defence that the exchequer is still carrying the burden of huge subsidies on these two products. The latest increase in world oil prices will only stiffen their stance against a withdrawal of the price hike.

The increase in international prices is also worrying because the country's oil imports continue to be substantial even though the oil-refining capacity has increased considerably since last year.

The higher refining capacity is largely due to the commissioning of Reliance Petroleum's new refinery at Jamnagar in Gujarat. This has meant that the country does not need to import petrol and diesel this year. In fact, there may even be a surplus available for export since some diesel has already been imported in the current fiscal yet and is being kept in storage for the time being.

The country will, however, have to continue importing crude oil as well as well as products such as LPG (liquefied petroleum gas) and kerosene to meet domestic demand.