Oil prices fell about 3% this Thursday due mainly to India’s rise in (world’s third-largest oil importer) coronavirus cases and US Colonial Pipeline resume of operations. In fact, these two events halted a lifted crude prices rally for the past eight weeks. Moreover, the results contrast with forecasts expecting a rebound in global demand later this year.
Accordingly, Brent crude ended the session down $2.27, or 3.3%, at $67.05 a barrel, after rising 1% on Wednesday. Similarly, West Texas Intermediate (WTI) settled $2.26, or 3.4%, lower at $63.82 a barrel. In fact, it rose 1.2% in the previous session.
Moreover, both benchmarks marked their most significant daily drops in percentage terms since early April.
India’s coronavirus crisis: damaging national and international demand
Regarding India’s crisis, it is essential to note that gasoline and diesel prices in the country hit a new record-high on Wednesday. Besides, with a resurgence in COVID and mobility already restricted locally because of the pandemic, now the concerns are also on further declines in India’s consumption of transportation fuels.
Additionally, this increase in oil prices affects the prices of the most used fuel in India, diesel, which now is too high for many households, and consequently, demand. Therefore, consumers in India are angry with the record-high fuel prices and shocked when they see how much the fuel costs now.
This situation adds to an already plunged demand of 9.4% in April compared to March, due mainly to the COVID crisis.
Accordingly, diesel’s price jumped on Wednesday, and so did the price of gasoline. Indeed, this is the seventh increase in prices so far in May and the third day of price hikes this week alone.
Notably, public outrage is advancing since Indian refiners decided to raise fuel prices after local elections in five states ended early this month. In contrast, they had either reduced or frozen fuel prices between the end of March and the middle of April.
Taxes and Interest Rates
Remarkably, fuel prices vary from one state in India to another. Notably, these variations depend on local value-added taxes (VAT). Moreover, the central government of India receives money from fuel sales in the form of excise duty on fuels for vehicles.
Thus, all the taxes make up for 60 percent of the retail selling price of gasoline and more than 54 percent of the cost of diesel.
Furthermore, concerns are growing due to the spread of coronavirus in India. Mainly, fears are coming from analysts since they believe Southeast Asia will dent oil demand.
On the US side, prices came under pressure as a broader surge in commodity prices, labor shortage, and much stronger-than-expected consumer prices data this week have stoked inflation concerns. As a result, the Federal Reserve could raise interest rates.
“Crude prices have steadily declined as investors hit the pause button with super commodity cycle trade,” said Edward Moya, senior market analyst at OANDA. Thus, “inflationary fears have unnerved some investors into taking some profit off the table with their energy trades.”