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Current Affairs

Rise in oil prices

Date: 04 June 2021 Tags: Basics of Economics

Issue

The price of barrel of crude has reached a high of two years after recording $71 per barrel. This was in response to oil producing countries increasing their production.

 

Background

The oil cartel OPEC has been cutting their production level so as to keep the prices high. This has resulted in increase in rates.

 

Details

  • The price of Brent crude oil has increased from $52 per barrel since early 2021 as economic activity gradually picked after a year and also production cuts by some key oil producing countries.

  • Oil producing countries decided on supply cuts when oil was traded at $19 per barrel. Key producer, Saudi made additional voluntary cuts of 1 million barrel per day.

  • The rollback of production is not expected to have any effect on price decline as economic demand will keep the prices high.

  • The chances of a removal of economic sanctions from Iranian oil will also not create much of a difference on the costs as oil production would be gradual.

 

Impact of prices on India

  • Rise in international crude oil prices have forced Indian oil companies to increase prices of petrol and diesel since the beginning of this year.

  • Majority of the amount charged on the fuels consists of central and state taxes. Until taxes are lowered, the prices will not decline.