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Oil prices at the New York Mercantile Exchange fell $5.5 last week to $55.50 per barrel, the sharpest weekly fall since April 2005, due to continued mild weather in the north-east coast of the US. More important, the OPEC price basket is down to $53.23 per barrel now, well below the $60 that the cartel reckons is a fair price for its output. Interestingly, prices have been falling despite the two production cuts agreed on by OPEC recently — 1.2 million barrels a day in November and 0.5 million barrels per day beginning February next. Clearly, adherence to the production cuts by OPEC's members has, as always, not been scrupulous.

The Indian crude basket, which was at $57.8 per barrel on December 29, must be lower than $55 now. Soon, there will be calls for reviewing domestic fuel prices. The oil marketing companies, who have been complaining of under-recoveries through December, will be affected further if the government decides to reduce prices once again. But then, that will happen only if prices remain soft for the rest of this month.

Raghuvir Srinivasan

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