As we head towards the end of another COVID-ridden year, people’s concerns regarding the high fuel prices are at an all-time high for the upcoming year of 2022. With the recent fuel price hike in India, citizens must gear up for similar scenes for the coming year or at least get used to the fuel prices being so high. This is because according to Goldman Sachs, Brent crude oil price may hit $110 in 2022, which is currently at $85/per barrel.
• The Goldman Sachs Report
Goldman Sachs, the global financial conglomerate expects Brent crude oil prices to touch the $110-per-barrel mark by next year, a 30% jump from the current levels of $85/bbl. Goldman Sachs’ oil analysts say that the inconsistency in global demand-supply, and the current demand relatively near the pre-COVID levels, are likely to drive crude prices higher over the next year.
“We estimate that global oil demand has surpassed 99 million barrels per day (mb/d) and will shortly hit its pre-COVID level of 100 mb/d as Asia rebounds after the Delta wave,” Goldman Sachs analysts said in a recent note. “In addition, we estimate that gas-to-oil switching may be contributing at least 1 mb/d to oil demand, with current gas forwards incentivising this through winter. While not our base-case, such persistence would pose upside risk to our $90/bbl year-end Brent price forecast.”
Analysts at Goldman Sachs said that oil price was not high enough to create demand disruption given falling energy intensity in developed markets and rising income levels in emerging markets. “Specifically, we estimate that the 2022 Brent price would need to reach $110/bbl to balance the deficit we expect through Q1 2022 via the demand side alone.”
• What does this rise mean for India?
A comparable 30% rise in petro product prices in India would mean petrol prices could be near the ₹ 150-per-liter mark and diesel ₹140/ltr. This is based on t 150-per-liter were seen before the pre-Diwali price cut. During the price hike, petrol price was at Rs 113/ltr while diesel was at Rs 104/ltr on average.
• Pre-Diwali drop in fuel prices
On Diwali eve, the central government had announced an excise duty cut of ₹5 per liter for petrol and ₹10 per liter for diesel. Petrol and literal prices, as a result, military states fell sharply while numerous states declared Value-Added Tax (VAT) cuts after the Centre’s move to cut excise duty levied on fuel.
For those uninformed, the retail rate of petrol and diesel is decided after adding central excise, commission paid to dealers, and value-added tax (VAT) to basic oil prices. The basic, oil price is the prevailing international benchmark rate plus freight.
Thus, the cut in excise duty by the Centre, followed by a reduction in VAT in several states, has led to this acute drop in petrol and diesel prices after they had reached a record high in the last couple of weeks of October.
• Restrain in inflation
According to the report by The Economic Times, the government’s move to cut automotive-fuel prices last week is also likely to assist the central bank’s attempts to normalize liquidity flows and check inflation, pushing back the timeline for an increase in rates and providing sufficient growth incentive to an economy scrambling out of the COVID sinkhole.
As pump prices of transport fuels are slashed, there is a possibility of lower goods costs, possibly giving the Reserve Bank of India (RBI) adequate room on liquidity tapering and yet restraining bond yields from spiking as expectations of a change in the rate trajectory are pushed back beyond the latter half of 2022.