Fuel prices on fire test strength of ‘recovery’

The country’s diesel consumption, which grew despite a rise in prices in December 2020, now faces the challenge of further price rise as oil-producing nations have resolved to reduce supply.

Buoyed by economic recovery, the country consumed 7.18 million tonnes of diesel in December 2020, a 10 per cent month-on-month growth even as retail prices rose to their highest levels in over a year.

The trend of month-on-month increase in both consumption and price was seen briefly in June 2020, but didn’t continue as further price rise in July and August met with subsequent drops in consumption. Retail prices had since been on the downward trajectory until December, when they rose dramatically.

But consumption increased in December to an 11-month high as economic activity rebounded. The amount of crude oil processed by Indian oil refineries similarly showed year-on-year growth for the first time in 10 months.

OPEC’s production cut

This resilience is now being tested as prices have soared even higher in January, and are expected to rise further in the coming weeks after the Saudi Arabia-led Organization of the Petroleum Exporting Countries (OPEC) and Russia agreed on production cuts earlier this month, putting pressure on India’s economic rebound and drawing ire of the Union Government.

Except for October 2020, during which it rose 10.7 per cent year-on-year, India’s diesel consumption has not yet been able to reach pre-Covid levels.

Petroleum and Natural Gas Minister Dharmendra Pradhan has accused the OPEC and its allies, which supply the lion’s share of crude oil to the world, of backtracking on their commitments.

“We were supposed to… ramp-up (production) gradually by January. But contradiction to that, we all are controlling oil production," he said at a conference this week, adding that this is “creating confusion” among consumer countries such as India, whose oil demand is met mainly by imports.

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