We all are talking about one thing that is going to concern to every economy on this earth. Energy demand is surging as strong growth in developing economies balances slower demand in the West.
Reasons for rise:
Ø Oil provides about 40 percent of the world's primary energy, according to OPEC, the exporter's cartel. OPEC is not ready to increase the production of crude (oil).
Ø Oil is traded in commodities which also is one of the reasons for rise in price.
Ø Due to on going motor season in US and presidential elections in US next yr and Olympics in China next yr, both these countries will have high requirement of Oil. They will try to fulfill their own demands. So again oil prices are all set to rise.
Ø Developing countries like china, India are trying to grow at 8% - 9%, so again their energy demands are to be met.
Why such a step by Indonesia?
Indonesia is pulling out of OPEC as it is no longer a net oil exporter, the Minister of Energy and Mineral Resources said on 28 May. The country of 235 million people is Southeast Asia’s only member of OPEC. But it has had to import oil because of decades of declining investment in exploration and extraction due to corruption and a weak legal system, which make oil companies wary of doing business in the country.
Where is India?
India has a refining capacity of 149 million tonnes per annum of crude.
Today IOC is talking about rationing of Petrol which will mean that according to the individual petrol pump sales, they will be provided the oil. Ultimately it will lead to shortage of oil in the market.
Example: IOC has a 40.4% share of the business. IOC is currently losing Rs300 crore a day because it sells petrol, diesel, kerosene and LPG at a loss of Rs16.33 per litre, Rs23.49 per litre, Rs28.72 per litre and Rs305.90 per cylinder, respectively. Crude oil prices have more than doubled from a year ago and hit a record $135.09 (Rs5,836) a barrel on 21 May.
Solutions
Ø The only alternatives are to let the price rise according to the international markets and accordingly provide the subsidies.
Ø Also one option can be to form a cartel of importers so as to bargain with the OPEC and prices can be restored.
Ø Oil trading on commodities should be banned.
Ø India as a developing economy should consider other ways of meeting Energy Demands. Nuclear energy is one of the options that India must look at.
Ø Also since Elections are also due in India the current government is not taking any chances or risk by raising prices. The issue is more political in nature.
Anyways we need to be ready to have a price hike by atleast Rs 5/- on petrol.
