Just when developing countries around the world were facing a dramatic shift in the rising prices of commodities like oil, a drone attack on the Saudi Arabian oil facility changed the situation completely. A DRONE ATTACK by Houthi rebels tripped the prices of Brent crude oil to cross USD70 per barrel on 8 March 2021. It was the first time in more than one year that an attack on a Saudi oil facility stoked fears over fuel prices.
A week before the attack the Organisation of the Petroleum Exporting Countries (OPEC) and its alliances in OPEC+ decided not to surge their output to improve the economical situation. As a result, Brent crude value recovered to the mid USD60s even before OPEC made its move with its alliances.
The optimism among the alliances was surrounded by the fast and smooth rollout of COVID-19 vaccines around the world, leaving a huge relief for the global economy to recover from a lull. The economic reality was taking a shape as days of lockdown were fading, and a return to #NewNormal was not quite far. Joining the smooth movement, global oil stocks were unfolding demand and supply to a proper expected balance.
However, the drone attack by Houthi rebels on a storage tank at Ras Tanura in Saudi Arabia spooked the markets globally. The volatile situation in the market was not a new development. A series of attacks in different parts of the world, such as the US airstrike in Baghdad in January 2020 that killed a top Iranian commander also sent the prices up by 4%.
Incidents like this are not a piece of good news for the larger economies. There is an oil price war cry going on as the price of West Texas Intermediate crude also hit the volatile movement as the combination of crude and plunging demand could not hold the stability in the market. Though, some relief gained eventually, when prices gradually went in recovery mode with the steady increasing drilling rigs.
Since then, recovery mode in the commodity sector was appreciated in certain regions of the world. However, it’s not true for some of the developing countries like India, where oil prices are shooting in a V-upward movement. Unless the discipline within the alliances is not steady, the rising oil prices will hurt the economies internally leaving a huge impact on bulk exports of oil and foreign exchange.
The investment bank is estimating Brent Crude to reach USD75 in the second quarter of 2021, with a rise to over USD80 for the coming three months.
Attack on Saudi Arabia’s storage tank might push record-high retail prices of fuel in India, as suggested by analysts. In the capital Delhi, Petrol was being sold at INR91.17 per litre while diesel was seen at INR81.47 per litre on the same.
According to Indian Oil Corporation, petrol prices in Mumbai were seen at the digital figure of INR97.57 at the fuel pumps while diesel retailed at INR88.60. The late Sunday attack on the Saudi region further fuelled the rally of oil prices as it is the second-largest seller of oil to India.
The rising prices of fuel will definitely feel the pressure as it is heavily dependent on commodity import like oil. It will be a bigger challenge for the government to retain high taxes on commodity prices without further frustrating the citizens of the country.
Higher fuel price will eventually stoke inflation, especially amid the COVID-19 pandemic when the focus of the government is to provide smooth services to the citizens by keeping taxes and interest rates at the secondary position. While some cities in India are already witnessing a psychological INR100 litre mark, the outcry of the general public cannot be ignored by the central government.
The government is already facing backlash from the public, it is time for the largest economies to build a feather situation that will help people to breathe under smoother financial circumstances. Otherwise, hyperinflation might just take the entire globe a step backwards that might result in slower growth and months (maybe years) to recover from the financial and economic dent.
As worse as it might sound, OPEC and OPEC+ alliances are hinting at a smoother recovery of oil prices where developing countries and largest economies of the world will feel a lifted weight as the COVID-19 pandemic fades in the history, and oil prices can doom back to stable trade. Till then, you can keep following the latest bulletins and news about oil prices on AlShorts Short News in 30 Seconds.