The price of Brent crude crossed the $60 per barrel mark after over a year on the back of oil-producing countries maintaining production cuts due to lockdowns.
What is Crude Oil?
- Petroleum also known as crude oil and oil is a naturally occurring, yellowish-black liquid found in geological formations beneath the Earth’s surface.
- It is commonly refined into various types of fuels.
- Components of petroleum are separated using a technique called fractional distillation, i.e. separation of a liquid mixture into fractions differing in boiling point by means of distillation, typically using a fractionating column.
- It consists of naturally occurring hydrocarbons of various molecular weights and may contain miscellaneous organic compounds.
- The name petroleum covers both naturally occurring unprocessed crude oil and petroleum products that are made up of refined crude oil.
Why has the price of crude oil risen sharply?
- Major oil-producing countries had cut oil production last year amid a sharp fall in demand due to the Covid-19 pandemic.
- However oil-producing countries have continued to limit production despite an increase in prices with Saud Arabia cutting its own oil production by 1 million barrels per day to strengthen crude oil prices.
- Expectations of strong improvements in demand with the global rollout of the Covid-19 vaccine have also put upward pressure on crude oil prices according to experts.
How will this impact India?
- The rise in the price of Brent crude will lead to an increase in India’s import bill.
- India imports of 80 per cent of its crude oil requirements and the average price of Indian basket of crude oil has already risen to $54.8 barrel for January.
- The upward move in crude prices will also put upward pressure on petrol and diesel prices across the country which is already at all-time highs.
Signs of no remedy
- The government had hiked central taxes on petrol and diesel by Rs 13 per litre and Rs 11 per litre in 2020 to boost revenues amid lower economic activity.
- The increase in taxes had prevented consumers from getting the benefit of low fuel prices as international prices crashed during the first quarter of last fiscal.
