Why Are The Oil Prices Falling?

Oil prices have fallen as the number of cases of the coronavirus Delta strain has increased. There are dampening predictions of growing oil consumption and raising the likelihood of re-imposed restrictions and reduced mobility.

Brent crude, the worldwide benchmark, was trading at USD72.65 per barrel at 0727 GMT, down 1.07 per cent from Friday’s close of USD73.44 per barrel. The American example West Texas Intermediate (WTI) traded at USD71.12 per barrel simultaneously, down 1.31 per cent from the previous session’s close of USD72.07 per barrel.

Oil prices began the week on a downward trend after remaining relatively stable the previous week as investors assessed the condition of demand recovery in various world regions.

OPEC +

What’s more, a tightening of Beijing’s regulations on the abuse of import quotas, combined with the impact of high prices, could send China’s oil imports. They are the world’s largest, plummeting downhill to their lowest level in 20 years.

However, despite OPEC+ countries increasing production, oil supply is likely to remain tight. This is down to the increase in production being inadequate to offset the predicted growth in demand. All goes well, and an increase in COVID instances causes no significant change. Investors should monitor oil inventory data to understand better how oil prices may fluctuate in the short term.

Prices of petrol and diesel

Petrol and diesel prices in China, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and Myanmar are significantly lower than in India. They import a significant amount of petroleum as well, although their taxes are not as steep.

The tax on these products in Canada ranges from 15% GST (5 per cent in non-participating provinces) + roughly 2%. Tax rates in the European Union range from 45 per cent to 60 per cent. High oil costs exacerbate inflationary pressures. With record-high gasoline/diesel prices, the cost of carrying goods across the country rises, potentially raising the cost of essential commodities.

Household earnings are falling, which hurts demand. According to a report by Wall Street brokerage Bank of America Securities, inflationary risks are higher in 2022-23. The global oil price prediction has been raised up to $75 per barrel from $60 before 2022.

Tax revenues

The National Democratic Alliance government introduced the 122nd Constitution Amendment Bill in 2014 after extensive consultation with stakeholders. The only exclusion from GST was alcohol for human consumption and a provision stating that the petroleum above products would be subject to GST with effect from such date as the Council may recommend.

The states were hesitant to submit about 25-30 per cent of their guaranteed tax income to the first uncertainties of a new tax regime.

Economists feel that lowering taxes on petroleum and its products is critical for a post-pandemic economic recovery. It occurred amid the global financial crisis of 2008-09, and it boosted industry production and the economy immediately.

Shaktikanta Das, the Reserve Bank of India governor, has also encouraged the government to gradually unravel fuel tariffs to relieve pricing pressure on the economy.