Current Affairs

Issue

The rise in concerns about effects of Omicron variant of Covid-19 virus has been lowering prices of crude oil in international market.

 

Background

The WHO had recently designated Omicron variant of the virus as ‘variant of concern’.

 

Details

• The lowering of crude oil prices is expected to reduce the prices of petrol and diesel for consumers in India.

• The prices of crude oil have been falling $70.6 per barrel down from $84.4 per barrel at the beginning of the month.

• There have been worries about oil demand due to fear of Omicron variant not being effective at preventing infection.

• There was also help from planned coordinated release of emergency crude oil reserves by the United States, China, Japan, India, South Korea and the United Kingdom.

 

Effects on domestic fuel prices

• Oil Marketing Companies (OMCs) will start lowering petrol and diesel prices in line with international prices.

• The effect of crude oil prices is seen with a lag as domestic prices are based on a 15-day rolling average of global prices of petrol and diesel. 

• OMCs have previously stopped themselves from lowering the prices to make up for lower margins when global prices were increasing.

• OMCs are also keeping the global prices constant since centre announced cut in excise duty. Several states have reduced Value Added Tax (VAT) imposed on petrol and diesel.

 

Way ahead

There are no indications of OMCs planning to give drastic relief to consumers. The lower margins may force them to keep prices stable.