Oil and Gas Sector – HELP, Open Acreage Policy, etc.

Significance of crude oil crossing $60 a barrel


From UPSC perspective, the following things are important :

Prelims level : Crude oil prices dynamics

Mains level : India's oil import bill

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.

Inline Feedbacks
View all comments