Oil prices have risen dramatically in recent weeks.
While the Indian government had stressed a great deal about deregulating the sector, it has been largely inconsistent with its actions.
What is the world-wide trend in oil prices?
Tensions in West Asia and the recent US attack on Syria have also added to the market uncertainty that has been pushing the prices upwards.
But it is important to separate short-term volatility in oil prices owing to geopolitical tensions from longer-term trends in the oil market.
Even without the recent uncertainties, the price of Brent crude has risen to $72 a barrel (highest since 2014) from about $62 just a month ago.
Through coordinated action – “Organisation of the Petroleum Exporting Countries” (OPEC) seems to have succeeded in ending the market surplus.
Notably, OPEC cut production by around “201 thousand barrels” a day in March compared to February.
But despite this, oil supply rose by “180 thousand barrels” a day in March, as non-OPEC countries (like US) have jacked up their output to meet demand.
Additionally, experts have stated that the persistent high in oil prices might usher in the next wave of shale explorations to enhance supply.
How has India’s oil policies been?
Buyer Cartel - India had mooted the idea of allying with other Asian oil buyer countries like China to bargain better prices with the OPEC members.
But this wasn’t followed up with supporting actions by the government.
Liberal Market - Global oil prices came crashing in 2014, but the government increased tax rates to keep the prices high.
It was stated as a way to make up for the subsidies and under-recovering that the oil PSU endured during the times of peak prices.
Subsequently, a pro-market reformist aura was constructed around the oil pricing policy, and the government completely deregulated prices.
Recently, PM Modi had again stressed the need for more ‘responsible’ oil pricing to ensure smooth and sustainable businesses and markets.
Inconsistency – But the recent increase in international crude oil prices have failed to push local petrol and diesel prices upwards in equal measures.
There has in fact been minimal increase in prices, which is probably due to the political pressure due to the crucial elections in Karnataka.
Such dilly-dallying due to a short-sighted vision is beneficial to none, and has also impacted the credibility of the government’s commitment to reforms.
Notably, this lack of trust is visible from the fact that stocks of oil PSU haven’t gained despite they being granted autonomy in fixing oil prices.
