The benchmark Brent crude soared above $112 per barrel on Wednesday as fighting intensified in Ukraine. The decision by the International Energy Agency to release crude from its reserves also failed to dampen prices.
Higher energy prices could worsen the inflation that’s already threatening economies everywhere and prompting concern among central banks.
In India, state-owned oil retailers are preparing to raise fuel prices next week once the state elections are over.
According to the the Petroleum Planning and Analysis Cell of the oil ministry, the Indian basket of crude rose above $102 per barrel on March 1 compared with $81.5 per barrel when the retailers last raised prices in early November.
“With state elections getting over next week, we expect daily fuel price hikes to restart across both gasoline and diesel,” JP Morgan said in a report. The results to the polls will be announced March 10.
The brokerage said the oil refiners need to increase prices by Rs 9 a litre or 10 per cent if they want to normalise their margins. “We expect a combination of small excise duty cuts (Rs 1-3 per litre) and retail price hikes (Rs 5-8 a litre) to reflect the pass-through of $100 per barrel oil,” it said.
Nomura said a 10 per cent rise in prices could add 0.4 percentage points to inflation.
Heavy reliance on imports will widen the current account deficit and undermine the rupee, Nomura said.
Devendra Kumar Pant, chief economist, India Ratings and Research, said a 10 per cent increase in the price of crude oil and sunflower alone could push retail and wholesale inflation upwards by 55 basis points and 109 basis points, respectively.
“This will pose a challenge to the Reserve Bank of India to continue pursuing an accommodative monetary policy. Since the government has already undertaken a sharp cut in import duty on edible oil, there is a limited scope for a further cut without impacting the fiscal arithmetic,” he said.
A JP Morgan research report projected two scenarios for oil: crude may come down to $86 a barrel by the October-December quarter or it can hit $150 if Russian exports come to a halt.
