Recovery means oil getting slick again – The Economic Times

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Backed by a robust tax collection, GoI should cut tax on fuels, nudge states to follow, and keep alive the proposal to bring petrol and diesel under GST.

Big shocks soften oil prices. A hint of recovery sparks a surge. And when Brent drifts outside the comfort zone, big boys step in to cut deals. That has been recent experience. After soaring to $147 a barrel before the Lehman collapse, it plunged to $46 in early 2009, a few months after the Wall Street bank failed, only to cross $90 a year later. Competition from shaleoilNSE -0.27 % producers pushed down the price to the $50s and the $40s in 2015 and 2016 as the Organisation of the Petroleum Exporting Countries (Opec) tried to preserve its market share. After climbing to $80 in September 2018, oil dropped to $45 two months later amid the US-China stand-off, but crossed $70 when Russia joined the cartel to cut supplies. In the summer of 2020 during a Covid-induced lockdown, it seemed all bets were off when oil, for the first time, slipped into a negative territory as producers were ready to even pay buyers for a while to lower unsold stocks. Today, crude has crossed $86, buoyed by beliefs that Omicron is less disruptive thanDelta. Some global banks predict oil may breach $100. The trajectory of price and events is a lesson for the government, business and consumers.

Backed by a robust tax collection, GoI should cut tax on fuels, nudge states to follow, and keep alive the proposal to bring petrol and diesel under GST. It could tame inflation, which is rising and may boil over in the run-up to state elections. In the short term, GoI has to weigh such macro fundamentals in juggling between choices like cutting tax on fuel and maintaining the fiscal deficit. But in the medium and long term, the world has to temper its expectations from renewable energy.

While everyone deserves cleaner air, complex forces can keep crude prices sticky. Incremental investments in exploration are down, energy generation from non-fossil sources is less than expected, and geopolitics may continue to cast a shadow. Russia is unlikely to give up on Ukraine and oil from Iran may remain a far cry. The road towards a less reliance on hydrocarbons can be long and sordid. The present rise in crude price is a reminder.

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