Here's why petrol and diesel prices are set to rise again

Here's why petrol and diesel prices are set to rise again
A board displays the petrol and diesel prices at a petrol pump as the fuel prices soar, in Guwahati on Tuesday, August 28, 2018.PTI
  • Brent crude prices are nearing $60 a barrel, a 3-week high.
  • Fuel retailers factor in the change in the cost of crude oil every fortnight.
  • Estimates peg crude prices at $60 to $70 a barrel by mid-2019.
Global crude oil prices are near a three-week high and it's an ominous sign that fuel is going to get dearer again.

In India, where fuel prices have been deregulated, the consumer has to keep one eye on the global developments to estimate the fuel bill.

Brent crude, which is a benchmark price that India follows for its crude purchases, is nearing $60 a barrel again. The prices have risen steadily since December 27, 2018. Indian fuel retailers factor in the average rise in cost of crude oil every fortnight.

There are three reasons why crude oil prices are rising.

Counting crude


The American Petroleum Institute reported a decline of 6.1 million barrels of oil inventory in the world's largest economy, for the week ended January 4. The official government data is expected later today.

As the stored inventory declines, the world's biggest consumer is expected buy more crude oil in global markets, pushing up prices further.

Trade war

Hope floats that US President Donald Trump and Chinese President Xi Jinping will reach a deal in the ongoing trade negotiations.

Unless the two world leaders resolve the dispute amicably, the tariff war between Washington and Beijing is expected to slow down the global economic growth, according to World Bank's
latest estimates
. on January 8.

Last year, Trump raised tariffs to 25% from 10% on $200 billion worth of Chinese products brought into US every year. In retaliation, China had said it would impose added duties on $16 billion worth automobile and energy products imported from America.

Positive commentary from China on Wednesday has helped market sentiment. State newspaper, China Daily has reportedly said that Beijing is keen to put an end to its trade dispute with the United States, but that it will not make any "unreasonable concessions" and that any agreement must involve compromise on both sides. Even US Commerce Secretary Wilbur Ross has said that there is a "very good chance" of a settlement.

The deadline for the two countries to reach an agreement is March 2, 2019.

Lobby rules

The other big factor for a spike in oil prices is the decision by the Oil and Petroleum Exporting Countries (OPEC).

OPEC, led by Saudi Arabia, agreed to cut oil output starting January 2019 to lift prices that had been bogged down fears of the trade war between US and China and a subsequent slowdown in global demand.

Saudi-based Arab Petroleum Investments Corp, a firm specialising in funding petroleum projects, reportedly expects oil prices to trade at $60 to $70 per barrel by mid-2019.