Fuel prices likely to go up by 8%

After a surplus in oil supplies led to the falling cost of oil, the Organization of the Petroleum Exporting Countries (OPEC) reached a deal to cut production in an attempt to raise prices once again. The member states include most of the world’s largest oil producers, including Saudi Arabia, Iran, UAE, Kuwait, Algeria, and Venezuela.

The price of crude oil is expected to increase following the cut in production, before the market stabilises once more at a higher price point. The production cuts will be shared between the larger member states of OPEC.

The production cut takes effect in January 2017, when the group of nations will cut 1.2 million barrels per day, bringing OPEC's total output to 32.5 million barrels per day. This is the first time OPEC has agreed to scale back production since the financial crisis of 2008.

Impact on fuel prices in India

Petrol and diesel prices are set by the state-owned oil marketing companies depending on the movement of fuel prices in the international market and rupee-dollar exchange rate.

The price of petrol could rise by 5-8 percent and diesel could go up by 6-8 percent over the next three-four months following the OPEC decision, according to Crisil Research.

In Delhi, that would mean petrol price could top Rs 71 per litre compared with Rs 66 now, and diesel more than Rs 59 compared with Rs 54 now.

As for domestic demand, the research house expects demonetisation and the consequent reduction in economic growth to curb usage, but things would rebound once currency in circulation reverts to normal levels.