In a sign of intense competition among oil producers, Saudi Arabia on Monday slashed crude prices by $11 a barrel for Aug, the sharpest fall in 26 years.The discount on Arab Light Crude follows a $6/barrel cut for July after the Strait of Hormuz opened, resulting in oil prices crashing to pre-Feb 28 levels. Saudi’s price for crude to Asia is $1.50 a barrel below the Oman/Dubai average, Bloomberg reported.
Back to pre-war level
Major Persian Gulf producers have been ramping up output at a rapid clip. Among them, Saudi Arabia’s exports have already surged close to their pre-war levels as the kingdom gets its tankers through Hormuz. The United Arab Emirates – which quit Opec during the conflict – also restored flows.The move came amid Opec+ and allies, including Russia, agreeing to further increase output targets by 188,000 barrels per day from Aug, on top of similar increases for June and July. Brent crude futures fell 47 cents to $71.7 a barrel on Monday evening (IST).Lower prices and increased supply augur well for India as refiners look to recoup some of the losses incurred by selling petrol and diesel below market price and their continued losses on cooking gas cylinders.Apart from boosting sentiments, lower oil prices also mean that govt will be able to rein in its subsidy bill, which is set to exceed the budgeted level in the wake of losses in the first quarter of the current fiscal year.While the Centre has already taken a hit of over Rs 1.2 lakh crore on account of tax cuts and other support to oil marketing companies, it has only budgeted for Rs 12,000 crore LPG subsidy outgo, which is set to be at least three times higher.Oil marketing companies are, however, unsure on how the Centre intends to make good at least a part of their losses as they stare at losses in the June quarter and with the impact of higher crude on their inventory spilling over into the Sept quarter as well.Lower oil and gas prices will also result in lower energy cost for Indian companies, which in turn will help keep prices and overall inflation under check, a major concern for India Inc, which feared that higher retail prices could prompt consumers to defer non-essential purchases.