On Tuesday, the price of crude oil fell below USD 100 barrel mark after a two-week period which observed the cost increasing to USD 139 per barrel; highest in 14 years. On Wednesday, the price of Brent crude reached USD 102.7 per barrel, a 32 per cent increase from USD 78.11 per barrel at the beginning of 2022. The surging cases of Covid-19 in China, which is the largest importer of crude oil, and its nuclear agreement with Iran to push the US for lifting sanctions on the former, could further boost the global crude oil supplies. The crude oil price is on the rise since the beginning of the year due to the Russia-Ukraine crisis.
Recently, China announced fresh lockdowns to curb the spread of Covid-19 infection, which has hit a two-year high in the country. The spread of infection and a higher transmissibility of the new omicron variant could challenge country’s supply chain once again, with rapid testing and lockdown being the major factor. According to the economists, if China fails to contain omicron’s spread further, the Covid-19 would derail the global economies soon. Any disruption in the export cycle would result in shortage, which would lead to inflation directly.
In 2015, Iran had agreed to limit its nuclear programme in exchange for relaxation in economic sanctions that restricts the country from exporting oil. Amidst the ongoing Russia-Ukraine crisis, Russia has guaranteed Iran that western sanctions on the Iran would not impact its economic ties with Russia. In January 2022, President Ebrahim Raisi of Iran met Russian President Vladimir Putin in Russia seeking a permanent and strategic cooperation agreement between the two countries.
On Tuesday, Russian Foreign Minister Sergei Lavrov said that Russia had received written guarantees that it would be allowed to carry on its work under the deal unimpeded. Iran can increase its crude oil production by approximately 1.5 million barrels per day if the sanctions on its oil exports are removed.
India imports nearly 85 per cent of its crude oil requirements. Thus, a high crude oil price translates to a higher price of diesel and petrol. Since November 2021, the oil marketing companies (OMCs) have kept the price of petrol and diesel constant, despite the increase in the price of crude oil, which had risen by about 27 per cent in the same period. In the next few days, analysts expect OMCs to increase the prices of petrol and diesel as per the international prices for petroleum products. Meanwhile, Russia, last week, offered crude oil at discounted rates to India as the US and EU decided to ban Russian oil imports.