Why will petrol prices drop?

  • Globally there has been an increase in oil production
  • Consumption in Europe and countries like Japan decreased
  • Fuel efficient automobile technology contributes to lesser usage of oil

The news that petrol process will be drop drastically was met with a lot of apprehension and a wee bit of hope too, especially when the reports suggested that the price may become as less as Rs 60. For a country that has only seen an upswing in petrol prices and it was expected that it won’t be too far ahead that the price of one liter petrol would go upto Rs 100; news of a steep decline is bound to be met with some amount of doubt.

Why will the price come down? Globally the oil prices are seeing a decline. The primary reason is the decision by the group of 12 countries like Saudi Arabia, Iran and Venezuela, collectively known as the Organisation of Petroleum Exporting Countries. The countries together produce 40 percent of global oil supply and hence hold large power to influence global energy markets. They had met last week in Vienna and decided not to cut production.

In fact over the last few years there has been a tremendous increase in production of oil and it was being contemplated if there needs to be a cut in the production to put a stop to decline of prices. Many western oil producing countries were for the reduction whereas the OPEC decided to go ahead with production.

The other important factors contributing to decline of prices includes the booming US economy. This upward trend is due to increased production of oil, which in turn is due to technical advancements in oil extraction. In addition to the US, countries like Canada, Russia and Libya have increased oil production considerably. So in principal there is much more oil available than that is being used.

Secondly, though the US economy that was experiencing a slump is getting back on its feet, there is still a down trend as far as economy is considered in Europe and countries like Japan.

The third and an interesting factor that contributed to lesser oil consumption is the energy efficient automobile technology being employed nowadays. In short, the simple economic rule of supply and demand applies to crude oil that will invariably see further slump as far as price is concerned.

Whether this decline will continue or is it just one of those good things that don’t last forever? One can’t say just now. But considering that fuel consumption is only going to increase in the coming years, more so in developing nations and in Europe once the economy recovers, fuel prices will definitely increase in year to come. Until then, enjoy the ‘Acche Din’.

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