REASONS FOR DECREASING OIL PRICES
On the last day of the year the petrol price has hit its lowest of the year. On sunday petrol prices has been cut by 22 paise per litre and costs Rs.69.04 in the capital. Diesel price has been cut by 23 paise and costs Rs.63.09. What are the reasons behind falling oil price.
The three largest oil producing countries are America, Russia and Saudi Arabia, whereas the biggest oil importers are China and India.
There is OPEC( organisation of petroleum exporting countries), they form a cartel and decide the production. Any pricing for products will be determined by supply and demand. OPEC decides to keep always the prices high so that the trade balances of the respective nations are positive by reducing the supplies. There is recession across globe and the consumption on oil is coming down. There are other initiatives like renewables, which also has really helped in this initiative. Iran is also a important supplier was sanctioned by US which prohibits other nations to deal with it. Our government instead of sitting idle or reducing taxes(which is a short term temporary measure not helping economy) decided to go into the root cause. One is reducing the dependence on oil, which is a long term solution, or increase supplies)
They acted on the latter influencing US to increase the supplies, to reduce the off take from IRAN. US through process automation and data analytical, their production costs have come down, and discovered one more oil pipeline, which allowed to increase the production. They become net exporter in November and expected to continue the same.
India on the other hand struck a separate deal with Iran for supplies and the increase in credit, payment in Indian rupees, which allows our currency to stabilise.
Further to reduce demand, a long term solution is being worked out, any new car which comes out post 2022 will be electric cars and slowly the oil dependent cars will fade away(all manufacturing companies have been instructed to move to this line). The oil prices per barrel which was 80 dollars came down to 52 as of today and expected to stay in the same level for the next couple of months. OPEC will try to convince its members to reduce the supplies to keep the prices high and not expected to happen immediately as US is increasing its production, and China’s consumption has also come down.
Where there is a will, there is a way, this govt has really worked hard with OPEC, US, Iran etc in keeping the supplies intact. We have to see how long they can do this, but certainly a different approach in solving the problem, rather than being a mere spectator.