• How Jaitley may have got it right on petroleum subsidy

    Finance minister Arun Jaitley’s expectation of benign crude oil price for the next financial year, which got reflected in this year’s budget numbers for petroleum subsidy, has found support from the latest developments on key factors impacting global oil prices.

    Jaitley has budgeted for a petroleum subsidy of Rs 21,909 crore for 2017-18, a less than 1 per cent increase over the revised estimate of Rs 21,770 crore for current fiscal. This came despite the nearly 25 per cent jump in oil prices since 30 November when the global cartel OPEC announced its historic production cut.

    US-based Energy Information Administration (EIA) reported last week US crude oil inventories rose to 508 million barrels between January 27, 2017 and February 3, 2017, the second-highest weekly inventory stockpile since 1982. US shale output rose to highest levels since April 2016, in the same period.

    “Gradual increase in retails prices of Kerosene and LPG will save subsidy for the GoI by around Rs 50 bn in FY18 as per ICRA’s estimates. After factoring in the benefits from the above, the subsidy provided in FY18 budget will be sufficient till a crude price of around $60 per bbl,” said K Ravichandran, Senior Vice President at ratings agency ICRA.

    He added the centre could have expected that crude prices will not increase materially from the current level. “This is due to counter balancing factors at play including additional US production which will more than compensate for voluntary cut by OPEC members in the near term, leaving the markets adequately supplied,” he said.

    Also, experts say US president Donald Trump’s energy policies towards increasing drilling as well as production activities will undermine OPEC’s efforts to restore prices.

    While Russia — one of the biggest oil producers — has agreed to cut production by more than 500,000 barrels per day in the first two quarters of 2017, analysts predict Russia’s oil output will reach record levels from the second half of 2017 to capitalize on increased oil prices.

    Further, Libya and Nigeria, which were exempted from making cuts in oil production, have aggressively increased production. Libya alone has raised output by more than 100,000 barrels per day since the OPEC deal was announced. Jarred Tinordi Womens Jersey

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