By
K Raveendran
When petrol and diesel prices were
heading up to their historical heights in the middle of last year, this column
had made a contrarian projection (Modi’s oil stars may be turning benevolent
again, June 29) that by the time Prime Minister Modi would be about to demit
office at the end of his tenure, his ‘oil stars’ may turn favourable again. Of
course, the projection was made on the basis of likely developments in t he
international crude markets as understood by analysts, although such a drastic
change within the projected timeframe may have appeared highly unlikely at that
time.
But such a scenario has become real by
now. As Modi and his NDA prepare to face the 2019 Lok Sabha elections, prices
of petrol and diesel have come down to such levels that the prime minister has
no worries on this front, which was not the case six months ago. For instance
petrol prices have eased by Rs12 a litre over the past three months. And if he
loses the opportunity for a second term, it may not be due to inflation caused by
high fuel prices, but other factors, of which there are plenty.
Contrast today’s prices with those
prevailed in October last year. Petrol and diesel prices had touched record
levels last year, with petrol selling at 82.72 per litre in Delhi, Rs. 88.18 in
Mumbai, Rs. 84.54 in Kolkata and Rs.85.99 per litre in Chennai as on October
15. The continued spike forced Modi to call a meeting of the oil company
chiefs, which was preceded by finance minister Arun Jaitley announcing a cut in
excise duty by Rs.1.50 a litre. Additionally, the state-owned oil marketing
companies were mandated to reduce prices of petrol and diesel by Re 1 a litre
each.
Modi was lucky to reap the benefit of
an oil bonanza when he took office in 2014 as it coincided with a crash in
global crude oil prices. Since he assumed charge in May, the price of the
Indian basket of crude oil crashed from $113 per barrel to $50 by January. The
dream run went on for a year when the price further tumbled to $229. This put
the Modi government in a unique situation to manage the fiscal deficit and
allocate resources to the new government’s priority programmes, if there were
any.
As 2018 approached, the oil stars in
Modi’s horoscope apparently started looking away. International crude oil
prices were climbing consistently and, with dynamic pricing of petroleum
products in place, this meant that consumers had to dish out more for the same
quantity and discontent was growing as people felt that the government was
helping the oil companies to surreptitiously make more money. But with the
announcement of Karnataka elections, the oil companies froze the hikes.
As soon as the elections got over,
however, oil companies started raising the prices with a vengeance, leading to
hue and cry as prices hit historical highs even surpassing the peak of the
crude oil price boom. And it appeared that the skyrocketing oil prices would be
the biggest stumbling block to the NDA government in seeking a return to power.
People’s frustration over the issue was clearly manifested b y the by-election
results, nearly all of which went against the ruling alliance.
But as Modi’s ‘oil luck’ would have
it, things soon began to turn in his favour once again. With OPEC leader Saudi
Arabia brokering a deal with Russia and members of the cartel to turn the tap
open for more oil to flow into the market, crude oil prices began to plunge. A
move by the OPEC to add one million barrels per day of crude production across
the cartel members to stabilise the market actually depressed the market beyond
the desired levels. Now there is competition among the producers to retain
their respective market shares, which is putting further pressure on prices.
The price collapse of over 40 percent
in the last quarter of 2018 alone has now prompted OPEC and other oil producers
to pursue another production cut to buoy the market, but there are
uncertainties over how players like Russia would respond to such a move as they
need to produce more to keep their economy going. But it will be quite a while
before any price stabilization effort can take hold on the market. That should
provide enough elbow room for Modi and his ruling alliance to face the
elections without any worry on the price front, although they have enough in
their hands by way of other troubles. (IPA
Service)
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