Fuel prices, a perennially sensitive issue in India, have historically shown fluctuations around major political events, including national elections. Analysing the data reveals a discernible trend: in the lead-up to elections, prices often exhibit a downward trajectory or a period of stability. But such stability is achieved, thanks to political intervention by the incumbent government, mindful of voter sentiment, as it attempts to mitigate public discontent over rising living costs by temporarily moderating fuel prices.

Conversely, following elections, prices tend to witness an upward movement. This phenomenon is partly explained by economic factors such as global oil prices and domestic fiscal policies but is also influenced by political dynamics.

The 2024 Lok Sabha elections, however, provide a pertinent case study. In the months preceding the elections, there was noticeable stability in fuel prices across various regions of India. This period of relative calm was marked by minimal fluctuations, contrasting with earlier phases where volatility was more pronounced.

Post-election this time has seen a different narrative unfold. With the electoral outcome settled, and the focus shifts to economic governance, prices have remained stable. But this is not due to any signal from the government, but due to factors such as global oil market trends, currency fluctuations, and domestic demand-supply dynamics coming into play. All of these have been favouring price stability.

Global oil prices have in recent months been showing bearish undertones, despite efforts by the producer cartel to keep those at higher levels by adjusting supplies. Swing producer Saudi Arabia even sacrificed market share to keep prices up, but the rates have been hovering around the $80-mark, which is attributed to continuing negatives in the global economy.

But recent weeks are showing signs of a recovery. According to market analysts, better-than-expected market fundamentals and expectations of forthcoming interest rate cuts by the US Federal Reserve are helping oil prices stay on a bullish trajectory. As a result, Brent prices increased by more than 6 percent in June, and July is starting on a similar path. This is expected to provide some relief for OPEC+, given the production cuts they have implemented and the planned unwinding of the voluntary reductions starting in October, for the following 12 months.

Energy specialists Rystad cites recent reports that suggest OPEC+ crude exports declined in June versus May, but the latest official data showed steady exports from the Middle East and declining exports from Russia in May. If crude exports from OPEC, after accounting for changes in crude burns and refinery runs, are confirmed to have declined by somewhere between 3 percent and 4 percent in June, then that may point to greater compliance by OPEC members. But the analysts still find such reading as speculative.

Russia’s seaborne crude flows in the week to 23 June appear to have dropped by 0.66 million bpd, to the lowest in more than three months. According to the analysts, the combined effect of lower crude exports from OPEC and Russia, right at the time when global refinery runs are expected to further rump up – from 83.1 million bpd in June to 84.4 in August – would explain the tighter crude market and the surge in Brent prices over the past three weeks.

On the geopolitical front, recent Houthi attacks in the Red Sea have sharply increased, disrupting shipping routes and impacting oil markets. This escalation since late May has heightened maritime security concerns, prompting vessel rerouting and higher shipping costs. With no signs of attacks ceasing amid ongoing geopolitical tensions, the potential for a prolonged closure of the Bab el Mandeb Strait looms. This would influence global oil trade and shipping economics, with broader implications for regional stability and geopolitical strategies.

In terms of macroeconomics, China's manufacturing activity continued to decline in June. China's mixed economic signals impact global oil dynamics, raising questions about its policy choices and demand growth.

Analysis believe that China's crude imports and refinery runs will likely rise in the second half of 2024 due to seasonal demand, new capacities and policy support. The market anticipates further policy support from the Chinese government to stimulate domestic consumption amid ongoing economic challenges. (IPA Service)