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Explainer: Why are global oil prices going up? What does this mean for India?

ONGC's mega investment plans

What is the current global oil price?

The global oil prices are high at this point. Two days ago, Brent crude price touched $90 a barrel—the highest in seven years. Prices are likely to remain high. According to some projections, oil prices could go beyond $100 per barrel.

Why should the high global price worry India?

India imports over 85 per cent of its oil requirements. If global prices increase, India’s import bill goes up. While high crude oil prices have always been a cause for concern for Indian policymakers, it is particularly worrisome amid the ongoing Covid 19 pandemic. As India expanded its expenditure to support the economy, room to absorb such shocks has reduced. Higher global oil prices would make petrol and diesel more expensive, which in turn will have an impact on inflation, something India needs to be watchful about.

Also read: Yemen, Ukraine conflicts could unsettle outlook for this year: SBI report

Why have global oil prices gone up?

The brewing political tension in West and Central Asia is one of the primary reasons leading to supply disruptions. Typically, such geopolitical disruptions affect oil supplies and prices. Besides, Russia, one of the major suppliers of oil and gas has been under the scanner over its actions related to Ukraine. The US has warned Ukraine of a “distinct possibility” of an attack from Russia.

However, crude oil prices have been rising for some time now owing to lower production. Prices rose by 60 per cent in the last one year.  In 2020 demand fell following the outbreak of the Covid 19 pandemic leading to surplus of oil. Since then the Organization of the Petroleum Exporting Countries and the allies reduced production, which led to tightening supplies.

What are the oil producing countries doing to address this?

The OPEC plus will meet on February 2. to look into the matter. A decision on whether output needs to be increased could be taken by the oil producers.