In spite of her concern about the plight of the common man due to continuously rising petrol and diesel prices, the government is happy when the crude oil prices go up, except in times of elections, because it brings more money into its kitty. As the taxes constitute the biggest component of petroleum prices, any increase in crude prices leads to disproportionately higher accruals to the government.

She even showed a rare candidness by admitting that ‘there is revenue there’. But here again, she has passed on a bigger part of the blame to the states. “It’s not just me, you ask any state, it is a source of revenue”, she said, but insisted that 41 percent of the taxes collected on petrol and diesel goes to the state governments, which incidentally are least inclined to forgo their right to collect more and more from the consumers in the name of spiking crude prices.

For the sake of record, India had asked OPEC to ease production controls so that crude prices could reverse a recent trend of consistent rise in the wake of the cartel’s decision to continue output controls for some more months. But the cartel members, particularly Saudi Arabia, with which India has long-term buying arrangements, rejected the plea saying New Delhi should have no worries as it had bought oil at rock bottom prices last year. The Saudi oil minister, in fact, suggested that India take out some quantities from its storage built with cheap oil. Obviously, the Saudi minister is not aware how higher prices are a source of additional revenue for the Indian government.

With market already on an uptick, and prices hovering over 60 dollars, a logical step by the cartel could have been to increase production from April by a fair margin and not roll-over the current output levels. However, OPEC+ decided to show remarkable restraint and keep production stable in an effort to see stock draws accelerate so as to get rid of the extra output that has been filling the storages during the Covid pandemic’s worst days.

It is clear that the producers are now eying a price target of 70 dollars, a neat 10 dollars over the current level, which is already straining the finances of importing countries. This is deemed as a victory for the restraint-favouring Saudis and other supply doves although there were pulls and pressures from certain other producers who wanted to loosen the taps more.

The OPEC meeting seems to have managed to keep both sides happy, with Russia, favouring more output, having been allowed to raise output in the name of increased domestic demand, while the Saudis got what they wanted, which is extension of the 1-million barrels per day cut at least for one month, to begin with. But overall, the extra flow from Russia and Kazakhstan would send the OPEC+ total production higher to 34.1 million bpd for April.

The Covid vaccination drive, which is progressing apace in countries such as India, could hold a few surprises in the days to come. If the vaccination produces the level of intended immunity among recipients, there may be a quick pick-up in demand, which according to analysts might turn the market super tight by the second half of the year, sending crude prices violently higher, unless the producers ease the cuts.

This is when the dilemma that Nirmala Sitharaman talks about will overwhelm all calculations of the government. With retail prices already hovering past the century mark, the upside potential for retail prices is rather limited, which means that the government will have to let go of some of the potential gains. The talk of bringing fuel under the GST regime is gathering momentum and this could be an effective solution to the boiling oil market. But for this to happen, both the Centre and states will have to settle for a certain ‘loss of revenue’, which neither side seems to be willing to concede without a fight. (IPA Service)