Ukraine conflict puts Brent near $120 a barrel, a 9-year high

Brent’s May futures contract on the Intercontinental Exchange hit a high of $119.84 a barrel on Thursday, according to Bloomberg. Brent was at $116.11 a barrel, up 2.82% around 7 pm. West Texas Intermediate (WTI) also touched a high of $116.57 per barrel during the day. WTI’s April contract on the NYMEX was up 2.78% at $113.68 a barrel around 7 pm.

Oil prices have skyrocketed amid the Russian invasion of Ukraine over concerns of a serious supply shortage. Russia is the world’s third largest oil producer and largest exporter. Many sanctions have been imposed on Russia, but the US and Europe have not imposed any sanctions on Russian oil and gas so far. However, with the conflict intensifying, there are growing concerns among market players over the possibility of sanctions on energy supplies from Russia.

Analysts said crude oil prices are unlikely to calm down in the near future. “We expect WTI prices to test $120 a barrel and Brent prices to test $125 a barrel in the coming sessions,” said Rahul Kalantri, Vice President (Commodities), Mehta Equities.

In a related development, the OPEC-plus grouping of 23 countries, including Russia, on Wednesday decided to maintain output growth of 400,000 barrels per day (bpd) in March. Analysts said the decision to maintain status quo despite prices hitting record highs also supported the prices.

According to Deloitte partner Debashish Mishra, India’s high level of import dependence will affect its balance of payments and current account deficit. The rise in oil prices will also affect the budget arithmetic for the coming fiscal as it was estimated that the crude oil price for FY23 was pegged at $70-75 per barrel. According to the Economic Survey of FY 2012, the Gross Domestic Product (GDP) for FY 2013 is estimated at 8-8.5%. According to the budget, the fiscal deficit is estimated to be 6.4% of GDP in 2022-23.

This rise in crude oil prices is expected to lead to a steep rise in retail fuel prices in the country. On Thursday, the price of petrol in Delhi was Rs 95.41 per liter and that of diesel was Rs 86.67 per liter. Fuel prices have remained stable amid the ongoing assembly elections for more than three months.

Inflation may also increase due to increase in the price of petrol and diesel.