The price of a futures contract for Brent crude oil has dropped over 9% in the last two days, slipping below $78 per barrel for the first time since December 12, 2022, amid demand concerns in the backdrop of a surge in Covid-19 cases across China, the world’s second-largest oil consumer after the United States. The crude prices were pressurised further after a survey found the Organisation of the Petroleum Exporting Countries (OPEC) oil output rose in December. The OPEC pumped 29 million barrels per day (bpd) last month, up 120,000 bpd from November, which put downward pressure on oil prices. Besides, the gloomy near-term demand outlook due to the resurgence of Covid cases, the fragile global economy, and the continued rise in interest rates by central banks across the world also weighed on investors’ sentiment.

Brent crude oil, a major benchmark price for purchases of oil worldwide, has fallen 9.2% in the last two trading days, from $85.91 to $78.01 a bbl in the overnight trade. Meanwhile, West Texas Intermediate (WTI) futures, the benchmark for U.S. crude, declined 8.8% to $73.38, the lowest level was last seen in March last year. During the Asian trading hours on Thursday, Brent futures were trading 1.2% higher at 78.78 per barrel, while WTI futures were up 1.3% at 73.83 a bbl, snapping a two-session session losing streak.

ICICI Direct Research in its report said that crude oil prices are likely to trade with a negative bias today on expectations that top oil exporter Saudi Arabia could cut prices for its flagship Arab Light crude grade to Asia in February, as concerns about oversupply continued to cloud the market.

Additionally, investors will closely watch crude oil and natural gas inventory data from the U.S. it added.

According to Ravindra V Rao, CMT, EPAT, VP-Head Commodity Research, Kotak Securities, “The Covid-19 situation in China and its impact on demand from the world’s largest importer of oil is continuing to haunt the markets. Additionally, IMF’s warning of a potential global recession in 2023, slowing manufacturing activity and a Reuters survey showing OPEC oil output rose in December has put downward pressure on oil prices.”

Rao further said that investors will keep an eye on the Energy Information Administration (EIA) oil inventory report slated to be released today after the API report showed a build in crude inventories by 3.298 million barrels as against a drop of 1.3 million the previous week. The EIA crude oil inventory report is a weekly measure of the change in the number of barrels in stock of crude oil and its derivatives and is released by the U.S. EIA, an agency within the U.S. Department of Energy.

Petrol, diesel prices remain steady

Despite the recent decline in international oil prices, there is no change in the retail selling price of petrol and diesel in India. The oil marketing companies have kept fuel prices steady for the last seven months. The last major change in fuel prices was seen in May when the central government lowered the excise duty on petrol by ₹8 per litre and ₹6 per litre on diesel. The current price for petrol and diesel in New Delhi is ₹96.72 and ₹89.62 per litre, respectively.

On January 3, the government increased the windfall tax on the sale of locally-produced crude oil, aviation turbine fuel (ATF), and high-speed diesel by up to 23%. The Centre first introduced windfall profit taxes in July after private refiners preferred overseas markets to gain from high refining margins, instead of selling at lower-than-market rates in the country. The tax rates are revised every fortnight based on average oil prices in the previous two weeks.

In its latest fortnightly review, the government hiked the windfall tax on domestically produced crude oil by over 23% to ₹2,100 per tonne from the existing ₹1,700, effective from January 3. The central government also raised the export tax on diesel to ₹6.50 per litre from ₹5 and overseas shipments of ATF to ₹4.5 per litre from ₹1.5.

India imports around 85% of its annual oil requirement. The Russian oil share in India’s import basket climbed to 22% in October from just 1% before the beginning of the Ukraine war. The share of India’s traditional suppliers, Iraq and Saudi Arabia decreased to 20.5% and 16%, respectively. India gets Russian oil at a deep discount of around $15-20 a barrel.

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